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Global data center service provider Equinix Inc. (EQIX - Analyst Report) has entered into an agreement with leading U.S. banks, including Wells Fargo Bank, N.A., Bank of America, N.A., Barclays Bank PLC, Deutsche Bank AG and certain other financial institutions for secured credit facility worth $750.0 million. The new debt has a maturity period of 5 years.
The facility will be issued in two parts — $550.0 million will be as senior secured revolving credit and the rest ($200.0 million) will be as senior secured term loan. Equinix will have to pay an interest rate of LIBOR (London Interbank Offered Rate) plus an applicable margin of 175 basis points for the term loan and 137.5 basis points for the revolving credit, per year.
The facility will also allow Equinix to transact in multiple currencies such as USD, Australian Dollars, Canadian Dollars, Euro, Hong Kong Dollars, Japanese Yen, Pounds Sterling, Singapore Dollars and Swiss Francs.
Equinix officials believe that the company has sufficient liquidity and capital resources to meet its current operating requirements and complete the publicly announced IBX (International Business Exchange) data center expansion plans. The funds raised from this agreement are meant for repaying loans taken by Equinix’s Asia-Pacific subsidiaries, worth $200.0 million. Apart from this, the company believes that the funds will improve liquidity position and help it to invest in growth opportunities.
In the first quarter of fiscal 2012, total debt (loans payable, convertible debt and senior notes) of the company was $2.67 billion, slightly down from $2.70 billion in the previous quarter. On the other hand, Equinix exited the quarter with $916.9 million in cash and cash equivalents, slightly up from $914.5 million reported in the previous quarter. Equinix paid a total of $52.8 million as interest.
Equinix has delivered strong first quarter results and provided a decent guidance for the coming quarter and fiscal 2012. We believe that strategic acquisitions and international expansion will help in expanding its client base, thus enhancing its revenue growth potential.
We are also optimistic about the company’s recurring revenue model and current expansion plans. However, despite all these positives, competitive pressure from the likes of AT&T Inc. (T - Analyst Report) and Verizon Inc. (VZ - Analyst Report) cannot be ignored. European exposure, high debt burden and industry consolidation also remain concerns.
Equinix has a Zacks #3 Rank, implying a short-term Hold rating.
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