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RockTenn Closes $700M Note Offering

Zacks Equity Research

RockTenn Co. (RKT) has announced the completion of the offering of $700 million senior notes. The offering includes $350 million of senior notes bearing an interest rate of 3.500% and maturing in 2020 and $350 million of senior notes carrying an interest rate of 4.000% and maturing in 2023.  

RockTenn intends to use the net proceeds to prepay loans under its credit facility and pay the expenses related to the prepayment. The company now expects to repay loans worth roughly $288 million under its revolving credit facility, $345.5 million under its term loan A facility and $54.5 million under term loan A2 facility.

RockTenn commenced issuing the senior notes on September 4. The notes are guaranteed on unsecured and subordinated basis by the company’s certain existing and future domestic subsidiaries.

RockTenn’s debt-to-capital ratio, as of June 30, 2012, was 48.7%, lower than 50.5% as of September 30, 2012. The company’s interest expense was $113.2 million for the twelve months ended June 30, 2012, higher than $65.9 million for the twelve months ended June 30, 2011.

With this note offering, the company’s debt level as well as the debt to capital ratio will increase. The company will also have to incur a higher interest expense to service the debt.

However, the company’s decision to repay loan will help it to reduce its interest burden to some extent. This, in turn, will help in boosting margin moving ahead.

RockTenn posted adjusted earnings of 95 cents per share in the third quarter of fiscal 2012, trailing behind the Zacks Consensus Estimate of $1.02. Revenues jumped 66.6% year over year to $2.30 billion in the quarter, missing the Zacks Consensus Estimate of $2.32 billion.

Based in Norcross, Georgia, RockTenn is one of North America's leading integrated manufacturers of corrugated and consumer packaging and recycling solutions. The Company operates in more than 240 locations in the U.S., Canada, Mexico, Chile, Argentina and China.

The company faces tough competition from leading companies like International Paper Company (IP), Bemis Company, Inc. (BMS) and Ball Corporation (BLL). RockTenn retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on the stock.

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