Alcatel-Lucent, S.A., a leading communication equipment company delivering integrated end-to-end voice and data communications solutions, has planned to issue convertible bonds to reduce its debt financing cost and extend the debt maturity with delayed repayment period.
The France-based company will initially sell 550 million euros ($715 million) of bonds that can be converted into or exchanged for one share each at its maturity on July 1, 2018. At maturity the bonds will be redeemed at a par value equal to a 30% to 37% premium to Alcatel's reference share price. In addition to the initial allotment, the debt offering might rise to as much as 630 million euros ($819 million) with full exercise of the over-allotment option. The issue has been planned to start on Jul 3, 2013. The bonds will have an interest rate of 4.25% to 5%.
A week ago the company outlined a three-year plan to sell more than 1 billion euros of assets. The company’s intention is to reduce spending and return to profitability after seven years of restructuring. It is also worthy of note that even after changing its chief executive officer twice the company has failed to revive its earnings growth. It should also be mentioned in this regard, that Alcatel-Lucent has a credit rating of B3 from Moody’s Investors Service and B- at Standard and Poor's both being six steps below investment grade ratings.
Exiting the first quarter of 2013, Alcatel-Lucent had a net debt of €358 million ($458 million). The company also reported a negative cash flow during the quarter, which was primarily attributable to, restructuring costs of €100 million, capital expenditure of €117 million and contribution to pension plans and negative working capital requirements of €146 million ($192.8 million).
Presently, Alcatel-Lucent has a Zacks Rank #4 (Sell). A few other companies operating in the same sector who are worth considering at the moment are Velti Plc and Logitech International SA (LOGI - Analyst Report) with a Zacks Rank #1 (Strong Buy), while NICE Systems Ltd. (NICE - Snapshot Report) has a Zacks Rank # 2 (Buy).