DIRECTV's (DTV) unit DIRECTV Holdings LLC, decided to issue $4 billion debts in three tranches of $1.25 billion, $1.5 billion and $1.25 billion, respectively, maturing 2017, 2022 and 2042. The issued debts carry a respective interest rate of 2.4%, 3.8% and 5.15%. The debt issuance is expected to be closed by March 8, 2012.
The company expects to generate net proceeds of $3.97 billion from the debt issuance and will utilize it to fund general expenses or repurchase shares.
DIRECTV exited fiscal 2011 with an enormous $13.5 billion in long-termdebt. So, further issue of debt will increase risk for the company. At the end of fiscal 2011, the company had $873 million in cash. Going forward, the mounting debt will also led to higher interest payments for the company.
Last year, the company issued similar amount of debts and the proceeds were utilized to finance share repurchase plan. So, going by that trend, we expect that the company in order to repurchase shares worth $6 billion, will continue to issue debts or use its revolving credit facility of $2 billion.
DIRECTV remains one of the few pay-TV service providers that are still generating commendable video subscriber growth. The company is continuously upgrading its customers with premium plans. We believe that such initiatives taken by DIRECTV will certainly drive its top-line growth going forward.
However, within the satellite TV industry, DIRECTV is facing increasing competition from its nearest rival DISH Network (DISH). Furthermore, U.S. telecom giants, AT&T (T) and Verizon Wireless (VZ) are increasingly rolling out their fiber-based network in order to provide video services. Additionally, the newly developed Internet video streaming companies like Netflix (NFLX), Hulu, YouTube have become major threat to the overall pay-TV industry. We, thus, maintain our long-term Neutral recommendation on DIRECTV.
Currently, DIRECTV has a Zacks#3 Rank, implying a short-term Hold rating on the stock.
California-based DIRECTV Group Inc. is a provider of satellite delivered digital television and video service.
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