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Seagate (STX) Raises $700M Through Senior Notes Offering - Analyst Blog

Zacks Equity Research

Hard disk drive (HDD) manufacturer Seagate Technology plc STX is raising capital through the issuance of unsecured senior notes. The company raised its principal amount of $400 million with an interest rate of 4.875% convertible senior notes to $700 million. The notes are set to mature in 2027.

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 14.

The raised amount (after deducting issue-related expenses) is estimated to be roughly $692 million. This will enable Seagate to increase fund availability and finance its continuing working capital requirements, capital expenditure, and general corporate expenses; facilitate the repayment of its 6.875% senior notes (due in 2020) and also fund withdrawal of outstanding notes.

As of Apr 3, 2015, the company had total senior notes balance of $3.93 billion. The balance consists of $800 million 3.75% senior notes due Nov 2018, $474 million 6.88% senior notes due May 2020, $159 million 7.0% senior notes due Nov 2021, $1.00 billion 4.75% senior notes due Jun 2023, $1.00 billion 4.75% senior notes due Jan 2025 and $500 million 5.75% senior notes due Dec 2034. Following the recent issuance, the senior notes balance will go up by an additional $700 million.

Seagate exited the third quarter of fiscal 2015 with $2.6 billion in cash and cash equivalents. Also, the company generated $2.42 billion from operating activities in the first nine months of fiscal 2015 compared with $1.98 billion in the same period last fiscal year. This indicates good liquidity position of the company, which will boost lender confidence.

Seagate reported disappointing third-quarter results, with revenues and reported earnings per share decreasing substantially year over year. The lack of visibility in the HDD industry due to a declining PC market is taking a toll on Seagate’s fundamentals. Furthermore, competition from Western Digital Corp. WDC and SanDisk Corp. SNDK adds to the woes.

Nonetheless, the company should benefit from the strength in its hybrid drives. Also, the company is focusing on the enterprise side, where it could acquire higher-margin business. Synergies from acquisitions and product innovations are the other growth catalysts.

Currently, Seagate has a Zacks Rank #3 (Hold).

Investors can also consider another technology stock, Cirrus Logic Inc. CRUS that has a Zacks Rank #1 (Strong Buy).

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