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Seagate Announces $1B Senior Notes

Zacks Equity Research

Hard disk drive (:HDD) manufacturer Seagate Technology plc (STX) recently commenced a public offering of senior notes worth $1.0 billion. The notes will carry an interest rate of 4.75% and are set to mature in 2023.

The notes will be issued by one of the indirect wholly-owned subsidiaries but guaranteed by Seagate. The notes will be issued to institutional investors through private placement and the offer will cease on May 22.

The raised amount (after deducting issue-related expenses) will enable Seagate to increase fund availability and finance its continuing working capital requirements, capital expenditure, general corporate expenses; facilitate the repayment of its 10.0% senior notes and also fund withdrawal of $250.0 million outstanding notes.

As of Mar 31, 2013, the company had total senior notes balance of $2.47 billion, down from $2.82 billion in the previous quarter. The balance consists of $600.0 million 6.8% senior notes due Oct 2016, $672.0 million 7.75% senior notes due Dec 2018, $600.0 million 6.875% senior notes due May 2020, and $600.0 million 7.0% senior notes due Nov 2012. Following the recent issuance, the senior notes balance will go up by an additional $1.0 billion.

Seagate exited its third quarter 2013 with $1.91 billion in cash and cash equivalents, up from $1.87 billion reported in the previous quarter. Continuous redemption of senior notes has led to a lower debt balance. This indicates good liquidity position of the company, which will boost lender confidence.

Seagate reported disappointing third-quarter results, with revenue and reported earnings per share decreasing substantially year over year. But the adjusted earnings per share exceeded the Zacks Consensus Estimate. The lack of visibility in the HDD industry due to a declining PC market is taking a toll on Seagate’s fundamentals.

But we are encouraged by Seagate’s optimism regarding strong demand for high-capacity drives, growth in Exabytes shipments given data exchange growth in mobile and the cloud and favorable pricing.

Currently, Seagate has a Zacks Rank #3 (Hold). We would recommend investors to consider other data storage device manufacturers such as SanDisk Corp. (SNDK), which carries a Zacks Rank #1 (Strong Buy), and Western Digital Corp. (WDC) and Hutchinson Technology Inc. (HTCH), which carry a Zacks Rank #2 (Buy).

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