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Brinker Prices Notes Worth $550M

Zacks Equity Research

Brinker International Inc. (EAT), a leading casual dining restaurant chain, has recently announced the pricing of notes aggregating $550 million. These notes have been issued in two tranches of different amounts, with varying interest rates and maturities.

The first tranche of $250 million, carrying an interest rate of 2.600%, will mature in 2018, while the second tranche of $300 million, having an interest of 3.875% is due in 2033.

The offering involves a consortium of renowned banks acting as the joint book-running managers. These include Merrill Lynch – a subsidiary of Bank of America Corporation (BAC), Pierce, Fenner & Smith Incorporated, and J.P. Morgan Securities LLC – a wing of JPMorgan Chase & Co. (JPM). Additionally, Wells Fargo Securities, LLC – a unit of Wells Fargo & Company (WFC), Regions Securities LLC and Mitsubishi UFJ Securities (USA), Inc. will serve as co-managers.

Brinker stated that a portion of the transaction proceeds would be used to repurchase its outstanding 5.75% notes due to mature in 2014. However, this note repurchase will result in the reduction of the fourth quarter fiscal 2013 earnings by 14 cents as it will be impacted by the short overlap period during which the new debt has already been taken and the old one not yet repurchased. The rest of the net proceeds will be used for general corporate purposes, share repurchases and repayment of existing debt.

Brinker, with its formidable portfolio, remains one of the most recognized restaurant chains in the casual dining segment. Besides note repurchase, the company has been consistently returning value to its shareholders by share buyback. In addition, the company boasts a solid cash position by regularly paying dividends. In the recently reported third-quarter fiscal 2013, the company spent $14.7 million on dividends and used $60.4 million to repurchase its common stocks.

Brinker reported third-quarter fiscal 2013 adjusted earnings of 72 cents per share, beating the Zacks Consensus Estimate by 4.3%. The earnings were also up 20% from the year-ago quarter, driven by the company’s higher margins. Brinker had $677.3 million in long-term debt and cash and cash equivalents of $85.7 million on its balance sheet. Currently, the company’s debt-to-total capitalization ratio is 73.4%.

This public offering will enable the company to attain financial flexibility and position Brinker favorably to pursue investment opportunities and acquisitions, which will go a long way toward enhancing its top-line growth. It will also bring down the company’s cost of capital, further strengthening its balance sheet and supporting its future growth.

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