DFC Global to Offer Notes
by Zacks Equity ResearchApril 10, 2012 | Comments : 0 Recommended this article: (0)
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With interest that is payable semi-annually, the notes will be unsecured, senior obligations of DFC Global. The company also expects to offer purchases of an additional $30 million aggregate principal amount of notes to the initial purchaser.
Concurrent to the offering, in order to lower the expected dilution upon future conversion of the notes, DCF Global intends to enter into convertible note hedge transactions with one or more associates of the initial purchasers of the notes (“option counterparties”).
Furthermore, the company intends to enter into separate warrant transactions with option counterparties at a higher strike price. However, this warrant transaction can also have a dilutive impact if market price exceeds the strike price.
Moreover, if the initial purchasers opt for purchasing the additional notes, DFC Global will enter into additional convertible note hedge and warrant transactions with the option counterparties.
The company intends to deploy the net proceed, in part, to finance convertible note hedge transactions costs and the remaining for general corporate purposes and debt repayments. The other general corporate purposes encompass acquisitions, investments and share buybacks.
Following the issuance of the notes, the company’s debt balance will increase as will its debt to capital ratio. The company ended the fiscal second quarter with debt balance of $768 million, down 0.9% from fiscal 2011 end level. Debt capital ratio was 63.5% at the end of fiscal second quarter compared with 64.5% at fiscal 2011 end. With the debt issuances, the debt capital ratio will increase by 520 basis points. There will be an increase in the company’s interest burden as well.
We retain our Neutral recommendation on DFC Global over long term. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.
Headquartered in Berwyn, Pennsylvania, DFC Global provides a range of consumer financial products and services to under-banked consumers.
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