NetApp Inc. (NTAP) recently commenced an offering of senior unsecured notes worth $1.0 billion in two parts. NetApp filed for the registration with the U.S. Securities and Exchange Commission. J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC will be acting as administrative agents for the purpose, along with certain other lenders.
The first part of the notes offering will raise $750.0 million, carrying an interest rate of 2.0%. The notes will mature in 2017. The second part of senior notes worth $250.0 million carry an interest rate of 3.25%. These notes will mature in 2022.
The notes have been assigned a rating of “BBB+“by Standard & Poor’s. The rating indicates that the borrower’s financial condition is stable and is capable of maintaining its financial stability over the near to medium term. The credit ratings act as financial indicators for potential investors.
The raised amount will enable NetApp to increase fund availability, finance its continuing working capital requirements, capital expenditure and also fund potential acquisitions.
As of October 26, 2012, the company had 1.75% convertible senior notes worth $1.23 billion. Following the recent issuance, the senior notes balance will go up by an additional $1.0 billion. The raised debt burden will have an impact on its interest charges. Interest expense in the last quarter was $19.8 million or 5 cents per share, which is quite significant.
NetApp exited the second quarter of 2013 with $5.57 billion in cash and cash equivalents, up from $5.44 billion reported in the previous quarter. Cash generated from operations was $336.4 million compared with $229.2 million generated in the prior quarter. This indicates solid liquidity position of the company, which can boost lender confidence.
Overall, NetApp’s performance was decent in the second quarter with the bottom line surpassing the Zacks Consensus Estimate. The company provided a cautious guidance on the back of ongoing macro uncertainty caused by the European debt crisis and federal budget cuts.
Though new product refreshes, association with Cisco Systems Corp. (CSCO) and VMware Inc. (VMW), and ramp of ONTAP 8.1 are positives, we believe that uncertain IT spending patterns and growth prospects of its archrival EMC Corp. (EMC) may pose serious threats.
Currently, NetApp has a Zacks Rank #3, (Hold).
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