Online travel booking company Priceline.com (PCLN - Analyst Report) recently announced the pricing of Convertible Senior Notes aggregating $1 billion due in 2021 in a private offering.
The new issuance will require the company to pay interests on a half-yearly basis at a rate of 0.90% per annum. Further, under certain conditions, these can be converted to cash or shares of Priceline’s common stock, or a combination of both, according to the company’s discretion.
The initial conversion rate of the newly issued Notes is 0.4865 common shares per $1,000 principal amount of the same Notes. This is equivalent to an initial conversion price of approximately $2,055.50 per share of common shares, subject to certain conditions. The initial amount corresponds to a premium of 60% to the company’s closing price of $1,284.81 per share on Aug 14.
In order to manage over allotment, the initial purchasers have been granted a 30-day option to purchase up to an additional $150 million principal amount of the Notes.
Priceline expects to raise $990.0 million from the transaction, after deducting estimated fees and expenses. The company stated that part of the proceeds will be used to repurchase $147 million shares through privately negotiated transactions. The remaining would be used for general corporate purposes, which could include repayment of the outstanding debt, repurchase of additional shares and corporate acquisitions.
The offering and the initial repurchase of the shares are expected to close on Aug 20, 2014, subject to customary closing conditions.
Priceline.com is one of the leading online travel companies in the world. In the recently concluded quarter (second-quarter 2014), the company generated $690.0 million of cash from operations and spent less than a million on share repurchases.
At quarter-end, Priceline had $1.76 billion in long-term debt and $41.3 million in short-term debt, totaling $1.81 billion. Currently, the company’s debt-to-total capitalization ratio is only 18.8%, which will increase after the issuance of these Notes.
We believe that Priceline has a strong balance sheet, which will help it to capitalize on investment opportunities and make strategic acquisitions, further improving its growth prospects. We believe the Senior Notes offering will bring down the cost of capital, thus strengthening the company’s balance sheet and supporting future growth.
Currently, Priceline has a Zacks Rank #3 (Hold). Other stocks that have been performing well and are worth a look include Mercadolibre, Inc. (MELI - Snapshot Report), World Energy Solutions, Inc. and Garmin Ltd. (GRMN - Analyst Report), all sporting a Zacks Rank #1 (Strong Buy).