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Equinix Secures New Term Loan, Alters Existing Loan Rates
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Equinix Inc. (EQIX - Free Report) recently declared that it has borrowed €1.0 billion in additional senior secured term B loans ("the Term B-2 Loans"). The company intends to use the entire proceeds to pay a portion of the purchase price for certain assets of data center assets from Verizon Communications Inc. (VZ - Free Report) .
Notably, the two companies entered into definitive agreement on Dec 6, 2016 under which Equinix agreed to acquire Verizon’s 24 data center sites, consisting of 29 data center buildings across 15 metro areas, for a total cash consideration of $3.6 billion. The deal is anticipated to be completed by mid-2017.
The Term B-2 Loans bears an interest rate equal to EURIBOR plus a margin of 3.25%.
Apart from the aforementioned borrowing, the company has also announced that it has reduced the borrowing cost of its existing senior secured term loan B facility (the "Term B-1 Facility") with effect from Dec 22, 2016. This includes a US dollar and a Pound Sterling denominated term loan facilities.
The interest rate for the US dollar denominated Term B-1 Facility, under which $248,125,000 were outstanding as of Dec 31, 2016, has been reduced to 2.5% from 3.25% and the LIBOR floor has been brought down to zero from 0.75%.
Similarly, the interest rate for the Pound Sterling denominated Term B-1 Facility, under which £297,750,000 were outstanding as of Dec 31, 2016, has been reduced to 3% from 3.75%. However, the LIBOR floor of 0.75% has been kept unchanged.
For all the transactions mentioned above, Bank of America Merrill Lynch acted as left lead arranger.
Borrowing costs are still low, enabling companies to obtain easy financing. Corporate bonds and borrowings from banks are in high demand as the U.S. treasuries are offering low rates. We believe that these borrowings will provide financial flexibility to the company to drive long-term growth.
Nonetheless, we are concerned about the company’s increasing debt burden. Equinix had cash, cash equivalents and short-term investments of $988.4 million, while its total debt principal outstanding was $6.98 billion as on Sep 30, 2016. The addition of new term loan will increase its debt to over $8 billion.
Growing debt burden will adversely affect the operating results as interest expense would go up. This will negatively impact its overall bottom-line results in our opinion.
Therefore, although the stock has outperformed the Zacks categorized REIT-Equity Trust-Retail industry in the last one year time frame, we do not see more upside potential in near-term. Equinix currently carries a Zacks Rank #4 (Sell) and VGM Style Score of “F”.
Equinix has returned 19.3% in the last one year, while the industry gained just 5.7% in the same time frame.
Realty Income and Retail Opportunity have long-term earnings per share growth rate of 4.1% and 5.8%, respectively.
Zacks' Top 10 Stocks for 2017
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Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>
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Equinix Secures New Term Loan, Alters Existing Loan Rates
Equinix Inc. (EQIX - Free Report) recently declared that it has borrowed €1.0 billion in additional senior secured term B loans ("the Term B-2 Loans"). The company intends to use the entire proceeds to pay a portion of the purchase price for certain assets of data center assets from Verizon Communications Inc. (VZ - Free Report) .
Notably, the two companies entered into definitive agreement on Dec 6, 2016 under which Equinix agreed to acquire Verizon’s 24 data center sites, consisting of 29 data center buildings across 15 metro areas, for a total cash consideration of $3.6 billion. The deal is anticipated to be completed by mid-2017.
The Term B-2 Loans bears an interest rate equal to EURIBOR plus a margin of 3.25%.
Apart from the aforementioned borrowing, the company has also announced that it has reduced the borrowing cost of its existing senior secured term loan B facility (the "Term B-1 Facility") with effect from Dec 22, 2016. This includes a US dollar and a Pound Sterling denominated term loan facilities.
The interest rate for the US dollar denominated Term B-1 Facility, under which $248,125,000 were outstanding as of Dec 31, 2016, has been reduced to 2.5% from 3.25% and the LIBOR floor has been brought down to zero from 0.75%.
Similarly, the interest rate for the Pound Sterling denominated Term B-1 Facility, under which £297,750,000 were outstanding as of Dec 31, 2016, has been reduced to 3% from 3.75%. However, the LIBOR floor of 0.75% has been kept unchanged.
For all the transactions mentioned above, Bank of America Merrill Lynch acted as left lead arranger.
Borrowing costs are still low, enabling companies to obtain easy financing. Corporate bonds and borrowings from banks are in high demand as the U.S. treasuries are offering low rates. We believe that these borrowings will provide financial flexibility to the company to drive long-term growth.
Nonetheless, we are concerned about the company’s increasing debt burden. Equinix had cash, cash equivalents and short-term investments of $988.4 million, while its total debt principal outstanding was $6.98 billion as on Sep 30, 2016. The addition of new term loan will increase its debt to over $8 billion.
Growing debt burden will adversely affect the operating results as interest expense would go up. This will negatively impact its overall bottom-line results in our opinion.
Therefore, although the stock has outperformed the Zacks categorized REIT-Equity Trust-Retail industry in the last one year time frame, we do not see more upside potential in near-term. Equinix currently carries a Zacks Rank #4 (Sell) and VGM Style Score of “F”.
Equinix has returned 19.3% in the last one year, while the industry gained just 5.7% in the same time frame.
Stocks to Consider
A couple of better-ranked stocks in the REIT-Equity Trust-Retail industry include Realty Income Corporation (O - Free Report) and Retail Opportunity Investments Corp. (ROIC - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Realty Income and Retail Opportunity have long-term earnings per share growth rate of 4.1% and 5.8%, respectively.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>