ICE Progresses Toward NYSE Merger
Now that the proposed acquisition of NYSE Euronext Inc. (NYX) by IntercontinentalExchange Inc. (ICE) is nearing culmination, the latter has issued long-term notes worth $1.4 billion in a two-part offering.
The first set comprises $600 million worth of notes at an interest rate of 2.5%. These notes are slated to mature in 2018. The remaining $800 million worth of notes bear an interest rate of 4.0% and are due to mature in 2023. Both the 5-year and 10-year notes, along with IntercontinentalExchange’s $1.8 billion of revolving credit facility and $1.0 billion cash, will be used to fund the cash component of the upcoming NYSE acquisition.
Concurrently, Moody’s Investor Service assigned an “A3” rating on the senior debt of the holding company of IntercontinentalExchange, with a stable outlook. The ratings agency also affirmed the “A3” rating on NYSE’s senior debt, and lifted its outlook to ‘stable’ from ‘developing.’
Nevertheless, the raised debt for NYSE acquisition will deteriorate the financial leverage substantially in the near term, from a debt-to-EBITDA of 1.2x at 2012-end to about 2.2x post acquisition. The projected combined debt will stand at about $4.7 billion in the merged entity.
The wariness is also shown by Moody’s and Standard & Poor's Ratings Services (S&P), who had downgraded NYSE’s long-term debt rating to “A” from “A+” in Mar 2013 and put a CreditWatch on the company. A CreditWatch acts as a red flag and allows a company to monitor its actions before causing a detrimental effect on ratings.
On the other hand, management expects to improve this ratio to below 1.5x as soon as possible, backed by Moody’s ratings on both the companies. Moody’s is optimistic about the inflated synergies from the merged entitythat will bring forth a strong competitive advantage by creating an end-to-end multi-asset portfolio and by diversifying across the globe, while also vigorously tapping new opportunities in the emerging economies.
Moreover, Moody’s opines that the proceeds from the disposition of Euronext platform is expected to be utilized for debt reduction. In Aug 2013, NYSE and IntercontinentalExchange announced the plan to raise about $1.0 billion from the disposal of a stake in NYSE’s Euronext platform through an IPO, which is expected to culminate in 2014.
However, Moody’s also cited prominent risks related to the integration and execution of the merged entity, which will have a vast scale of operations. Inability to deliver strong financial results and synergies from operations may also pose a downward pressure.
Yesterday, both NYSE and IntercontinentalExchange received unconditional approval from the Committee of Euronext Regulators. A final consent from the European national regulators is awaited before a solid business combination comes into existence. With most of regulatory approvals been successfully attained, the merger is in its final leg and is expected to culminate before the end of 2013.
While both NYSE and IntercontinentalExchange carry a Zacks Rank #4 (Sell), outperformers in the financial sector include American Express Co. (AXP) and Global Cash Access Holdings Inc. (GCA). Both these stocks carry a Zacks Rank #2 (Buy).
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