NCR Corporation (NCR - Analyst Report) announced that it has priced its senior notes at 100% of the principal amount, generating gross proceeds of $600 million at a coupon interest of 5.0%.
The notes will be unsecured in nature but will come with a guarantee from NCR Corporation. The proceeds from the issue ending on 17th Sept, 2012 is expected to be used for general company affairs and development, which includes funding for the company's U.S. pension plan and paying off its debts under the senior secured credit facility.
The guarantee and the related notes would be offered in the U.S.to certain qualified institutional buyers. NCR is in the process of expanding its business operation, extending its geographic reach and also attracting additional customers by offering more innovative ATM and POS products. We believe that the proceeds from these notes will also help the company as it would require capital expenditure to fund its operations.
However, the issuance will increase the debts and raise the debt capitalization ratio 0.43 at the end of the last quarter. Also, the raised debt burden will have an impact on its interest charges, which was 0.05 per share in the last quarter. We believe that the company must use the proceeds in product and services that offer meaningful solutions.
We believe that the company has a sustainable business model in place that will help it to achieve its long-term targets. Management is strengthening its financial services, hospitality and retail portfolios to increase penetration in new markets and that may require some excess funds.
Moreover, the company is also concentrating on its core ATM business and remains committed to taking a share of emerging growth verticals, such as travel, telecom and technology.
ATM manufacturers like NCR Corporation and Diebold Incorporated (DBD - Snapshot Report) are likely to benefit from new product introductions with some added features, as they are focusing on better security needs and ADA compliance. So, we believe that the company has sufficient scope for using the funds raised in a prudent way.
We remain positive about NCR’s deal wins from various industrial sectors. But a high debt burden, European exposure and stiff competition from Diebold and Wincor Nixdorf in the ATM market keep us concerned.
Currently, NCR has a Zacks #3 Rank, implying a short-term Hold rating.