Coinstar Inc. (CSTR) announced its intention to offer senior unsecured notes worth $300 million with maturity scheduled in 2019.
The proceeds from the issuance will be deployed for general corporate purposes.
Coinstar exited 2012 with a debt of $356.7 million, down 4.4% year over year. Debt-to-capital ratio of the company stood at 0.39x as of Dec 31, 2012, which represented an improvement of 3 percentage points from 0.42x at 2011 end. With the issuance of the $300 million debt, the debt-to-capital ratio is expected to increase 15 percentage points to 0.54x.
Nevertheless, the debt-to capital ratio is better when compared to that of another industry major, H&R Block Inc. (HRB) with a debt-to-capital ratio of 0.68x (as of Oct 31, 2012) while it is higher than that of Monro Muffler Brake Inc. (MNRO), with a debt-to-capital ratio of 0.06x (as of Dec 29, 2012).
With the issuance, the company will have to pay interest. Interest expense of the company showed a substantial decline of 34.3% year over year to $15.6 million in 2012. However, the same is expected to increase with the issuance of debt. Nevertheless, Coinstar’s solid operational performance generates enough funds to service the debt uninterruptedly.
Last January another retail giant, Netflix Inc. (NFLX) announced an offer of senior notes worth $400 million with maturity scheduled in 2021. Out of the proceeds from the issuance, $225 million will be deployed to pay for its outstanding 8.50% senior notes scheduled to mature in 2017. The remaining proceeds will be utilized to pay for general corporate purposes which include capital expenditures, investments, working capital and potential acquisitions and strategic transactions.
Coinstar carries a Zacks Rank #3 (Hold). H&R Block as well as Netflix carry a favorable Zacks Rank #2 (Buy).
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