Flowserve Corporation (FLS - Free Report) yesterday announced the pricing of $500 million worth of senior notes. Concurrently, the company floated a tender offer to purchase back its Euro-denominated senior notes due to mature on Mar 17, 2022.
It is worth mentioning here that Flowserve’s shares gained 0.4% yesterday, ending the trading session at $28.24.
Inside the Headlines
As mentioned, the notes — considered as the company’s senior unsecured obligations — are due to expire on Oct 1, 2030, and carry a coupon rate of 3.500%. It has been offered at 99.656% of the principal amount. Interest on notes will be paid semi-annually, each on Apr 1 and Oct 1. The first interest payment will be made on Apr 1, 2021.
Notably, the issuer has the make-whole call option for the senior notes. This option can be applied on Jul 1, 2030, for a consideration equal to Treasury+45 basis points plus accrued and unpaid interest. On the other hand, the notes can be redeemed on or after Jul 1, 2030, for a value equal to par value plus accrued and unpaid interest.
Notably, the offering’s expected rating is Baa3 by Moody’s and BBB- by both S&P and Fitch.
Subject to the fulfilment of customary conditions, the public offering of notes is expected to close on Sep 21, 2020.
Flowserve will use the funds raised from the notes offering for repurchasing its previously issued senior notes due to mature on Mar 17, 2022. Part of the proceeds, if any left after paying for the notes redemption, will be used for satisfying general corporate purposes.
It is worth mentioning here that the company’s tender offer comprises of €500 million worth of 1.250% senior notes. For every €1,000 principal amount of notes, the company offered to pay €1,000 as the purchase consideration. In addition to the purchase price, it will pay any accrued and unpaid interest, if applicable. Post purchase, Flowserve will cancel the notes. The tender offer is valid till Sep 21, 2020.
We believe that the offerings of senior notes will increase the company’s debts and in turn, might inflate its financial obligations and hurt profitability. Exiting the second quarter of 2020, its long-term debts were at $1,367.5 million, reflecting a 0.8% increase from the previous quarter. However, the repurchasing of notes will be a relief.
Zacks Rank, Estimate Trend and Price Performance
With a market capitalization of $3.7 billion, Flowserve currently carries a Zacks Rank #3 (Hold). The company is likely to gain from a solid backlog, healthy liquidity and cost-control measures in the quarters ahead. However, the pandemic-led uncertainties as well as high costs are major concerns.
In the past three months, the company’s share price has decreased 4.9% against the industry’s growth of 11.4%.
The Zacks Consensus Estimate for its earnings is pegged at $1.65 for 2020 and $1.60 for 2021, reflecting growth of 14.6% and 10.3% from the 60-day-ago figures. Also, earnings estimates of 44 cents for the third quarter have been raised by 4.8% in the past two months.