Terex to Redeem $300M Notes


Terex Corporation (TEX) will redeem $300 million senior notes bearing an interest rate of 10-7/8% and maturing in 2016. The redemption of the notes, issued in May 2009, will be effective on September 28, 2012.

Terex decided to pay the holders the principal amount, a premium which will be calculated under the make-whole provision of the indentures plus accrued interest of $35.34 per $1,000 principal amount at the redemption date.

The decision fits well with Terex’s strategy, helping it to improve earnings and generate cash flow thus assisting the company in reducing its debt level. The company focuses on reducing its interest expenses to improve its overall capital structure.

The company’s debt to capital ratio, as of June 30, 2012, was 54.7%, compared with 54.6% as of December 31, 2011. With the note redemption, the debt level is expected to fall.

During the second quarter, the company posted adjusted earnings of 75 cents per share, easily beating the Zacks Consensus Estimate of 49 cents. Terex generated free cash flows of $155 million during the quarter.

Earlier, in January 18, 2011, Terex completed the redemption of $297.6 million 7-3/8% outstanding senior subordinated notes due 2014. The total cash paid was $312.3 million.

Terex has made significant progress in diversifying its businesses, achieving growth in targeted areas and cultivating new revenue streams. The company completed the acquisition of nearly 82% shares of Demag Cranes AG in August last year and added a new business unit called Cranes segment.

Terex operates in highly competitive markets. The company competes with large players like Caterpillar Inc. (CAT) and Deere and Company (DE) with greater financial resources, as well as smaller manufacturers that compete primarily on price. If the competitors resort to price cuts, then the company would be forced either to lower prices on its products or lose market share.

Terex retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on the stock.

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