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Starbucks Prices Senior Notes

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Starbucks Corporation (SBUX - Free Report) has recently priced a public offering of senior notes worth $750.0 million. The notes will carry an interest rate of 3.85% and are set to mature in 2023.

Starbucks intends to use the proceeds for business expansion, dividend payment, share repurchase or financing acquisitions.

Starbucks filed for the registration with the Securities and Exchange Commission on Sep 3, 2013. J.P. Morgan Securities LLC (a unit of J.P. Morgan Chase & Co. (JPM - Free Report) , Morgan Stanley (MS - Free Report) and BofA Merrill Lynch are acting as administrative agents for the purpose, along with certain other lenders.

Apart from the recent offering, SBUX issued $550 million of 6.25% senior notes n Aug 2007, which are due in Aug 2017. The company pays interest semi annually on Feb 15 and Aug 15 every year.

Although the recent offering will enhance the financial flexibility of the company, it will also increase the debt and interest expense. However, as Starbucks has a good repayment structure, the new offering will not be a concern. Interest offering remained almost stable at $32.7 million from fiscal 2010 to fiscal 2012.

As of Jun 30, 2013, Starbucks held $1.4 billion of cash and cash equivalents and $2.4 billion of long-term debt.

Meanwhile, Starbucks continues to enhance its product portfolio and restarts serving its iconic Pumpkin Spice Latte marking the beginning of the pumpkin season from Sep 2013. This is the 10th anniversary of the popular drink and is the most popular seasonal beverage of SBUX.

Pumpkin Latte is growing popular; SBUX’s peer Green Mountain Coffee Roasters Inc. has come up with spicy pumpkin lattes that can be brewed in Keurig brewers.

In its recently concluded third quarter of fiscal 2013, Starbucks beat the Zacks Consensus Estimate for both revenues and earnings. Both the metrics also grew year over year. Robust increase in global traffic, increasing popularity of its Starbucks loyalty cards, efficiency improvements and cost controls and lower coffee costs boosted profits.

Moreover, the coffee giant upped its fourth quarter and fiscal 2013 guidance on the back of higher comps, lower commodity costs and operating leverage. Starbucks carries a Zacks Rank #3 (Hold).

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