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Intel Prices $6B Senior Notes

Zacks Equity Research

Intel Corp. (INTC), the world’s largest manufacturer of semiconductor products, has recently announced the pricing of senior unsecured notes aggregating $6 billion. These bonds have been issued in four tranches of different amounts, with varying coupon rates and maturities. The offering is expected to close on December 11, 2012, subject to customary closing conditions.

The first tranch of $3.0 billion carries a coupon rate of 1.35% and will mature in 2017 while the second tranch of $1.5 billion, carrying a coupon rate of 2.70%, will mature in 2022. The third and fourth tranches, each of $750 million, carry a respective coupon rate of 2.70% and 4.25% and are slated to mature in 2032 and 2042, respectively.

J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated will be acting as joint book-running managers for the offering. Intel stated that the transaction proceeds would be used for general corporate purposes and to repurchase shares of its common stock under the company’s existing share repurchase authorization.

Intel's proposed senior unsecured notes have been assigned ratings of A+ by the credit rating agency Standard & Poor’s. The credit rating acts as a financial indicator for potential investors. S&P has affirmed Intel’s corporate credit ratings at these levels with a stable outlook. They stated that the company’s financial profile was quite healthy and the chances of default remain minimal.

Intel is best known as a chipmaker and remains well positioned in the server segment. In the recently reported third quarter, Intel had $7.1 billion in long-term debt and 56 million in short-term debt, resulting in a net cash balance of $6.5 billion on its balance sheet. During the quarter, the company spent $1.12 billion on dividends and used $1.17 billion to repurchase its common stock. At the end of the third quarter, Intel had another $6.3 billion available for share repurchases under its existing authorization.

We believe that Intel has a strong balance sheet, which will help the company to capitalize on investment opportunities and strategic acquisitions, further improving its growth prospects. We believe the offering of the senior notes will bring down its cost of capital, further strengthening the company’s balance sheet and supporting its future growth.

However, the sluggish economic recovery and weak PC demand stemming from tablet cannibalization, particularly from Apple (AAPL), and its failure to expand into mobile gadgets continue to be the causes for concern.

Intel shares carry a Zacks Rank #3 (Hold).

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