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SBA Communications (SBAC) to Offer $1.5B of 3.125% Senior Notes

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SBA Communications Corporation (SBAC - Free Report) has priced a public offering of $1.5 billion of senior notes. The 3.125% senior notes due 2029 have been priced at 100% of their face amount.

The offering is anticipated to close on Jan 29, 2021, conditioned on the customary closing norms.

Notably, the company plans to allocate net proceeds of the offering to fund the planned full redemption of its $750-million aggregate principal amount of 4.000% senior notes maturing in 2022. The redemption will be made on Feb 11, 2021. Post such allocations, the remaining balance will be used for the repayment of amounts due under its revolving credit facility and for general corporate purposes.

Notably, SBA Communications exited third-quarter 2020 with cash and cash equivalents of $338.3 million, and full availability under its $1.25-billion revolving credit facility. Also, the weighted average interest rate of its outstanding debt was 3.1%, with the weighted average debt maturity of 4.2 years as of Sep 30, 2020. 

Admittedly, the company’s efforts to strengthen its near-term liquidity amid the uncertainty and tap the debt market amid the current low-interest-rate environment are strategic fits. Further, the notes will be issued at a coupon rate of 3.125%, which is lower than the coupon rate of 4.000% of the notes that will be redeemed. This is likely to result in lower interest expenses.

Moreover, by addressing near-term debt maturities, SBA Communications will enhance its financial flexibility and extend the average debt maturity term of debt.

Shares of this Zacks Rank #3 (Hold) company have gained 6.7% over the past year against the industry's decline of 7.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

 

However, the notes offering increase SBA Communications’ long-term debt obligation. In fact, the company has a substantially leveraged balance sheet, with $10.5 billion of total debt and leverage of 7X as of the third-quarter 2020 end.

Such a high amount of debt will likely increase the company’s financial obligations. Moreover, its debt-to-capital ratio is significantly higher than the industry’s ratio. This limits its strength to withstand the current crisis and any unexpected negative externalities in the future.

Other than SBA Communications, a number of REITs recently tapped the debt market with notes offering to benefit from the low interest rates. These include Lamar Advertising Company (LAMR - Free Report) , Duke Realty (DRE - Free Report) and Simon Property (SPG - Free Report) .

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