Financial holding company, Stifel Financial Corp. (SF) yesterday issued $300 million worth Senior Notes due 2024 at 99.196% of principal amount. The proceeds will be used to fund general corporate purposes of the company.
The notes carry a coupon rate of 4.250% per annum. Interest will be paid semi-annually on Jan 18 and Jul 18 with the first installment due on Jan 18, 2015. These notes are expected to yield 4.350% on maturity. The offering is expected to consummate on Jul 18.
Stifel Financial’s debt issue will likely attract a ‘BBB -‘ rating from Standard & Poor’s Rating Group as well as Fitch Ratings, Inc. The expected lowest investment grade rating, along with the concern of mounting financial burden, led to a fall of nearly 1% in the company’s share price yesterday.
Exiting first-quarter 2014, Stifel Financial had long-term debt, including senior notes and debentures, of approximately $407.5 million while its interest expense was $8.6 million. Ratio of earnings to fixed charges (measures the ability to cover fixed charges) was 2.46x.
Over the past five years, Stifel Financial’s interest expenses have soared 279% while its ratio of earnings to fixed charges has come down to 3.59x in 2013 from 5.56x in 2009. Higher proportion of debt in capital, according to us, will increase the company’s financial obligations and thus act as a headwind to overall improvement in profitability.
With a market capitalization of $3.0 billion, Stifel Financial carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry include Capital One Financial Corporation (COF), Comerica Incorporated (CMA) and Cohen & Steers Inc. (CNS). All these stocks hold a Zacks Rank #2 (Buy).