Sealed Air Notes to Fund Purchase

Packaging food products maker Sealed Air Corporation (SEE - Analyst Report) issued $1.5 billion notes with an intention to utilize the proceeds to fund a portion of the $4.3 billion acquisition of Diversey Holdings announced in June 2011.

The $1.5 billion notes issue is made in two tranches of $750 million each. The first series is supposed to yield 8.125% when held to maturity, September 15, 2019, while the second series is estimated to yield 8.375% when held to maturity, September 15, 2021.

Sealed Air will issue the notes to qualified institutional buyers and foreign buyers and expects the proceeds after expenses to be around $1.47 billion.

Long-term debts of the company were $1.4 billion as of June 30, 2011, and the debt-to-capitalization ratio was 35.5%. With the new issuance, the debt-to-capitalization ratio of the company increased to 53.1%.     

Interest expenses of the company in the second quarter 2011 decreased by $4.1 million year over year mainly due to lower debt levels from the year-earlier quarter. However, with the issue of new debts, interest expenses of the company will rise in the coming quarters.

Sealed Air's earnings per share of 40 cents during the second quarter exceeded the year-ago result and the Zacks Consensus Estimate. The company expects earnings per share in 2011 to be in the range of $1.75 to $1.85 per share.

The Zacks Consensus Estimates for third-quarter 2011, fiscal year 2011 and fiscal year 2012 are, respectively, 50 cents per share, $1.77 per share and $2.03 per share.

The notes issue will inevitably increase the debt burden of the company. Yet, the proceeds, earmarked for the Diversey Holdings buyout, would in turn generate higher returns. The acquisition will be the gateway for Sealed Air to venture into the commercial cleaning and sanitation markets. Besides, new products like disinfectants and cleaning solutions, obtained from the acquisition, would aid the growth of the company.

Sealed Aircurrently retains a Zacks #3 Rank, which translates into a short-term Hold rating. The company competes with Bemis Company, Inc. (BMS - Analyst Report) and Sonoco Products Co. (SON - Analyst Report).

New Jersey-based Sealed Air Corp. is a major specialty packaging services provider catering to a diverse set of end markets. The company operates in the United States and in 50 other countries.

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