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DXC Commences Tender Offers to Redeem $445M Senior Notes

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DXC Technology Company (DXC - Free Report) commences tender offers to purchase the entire outstanding amount under two different senior notes. The notes include 4.450% senior notes due 2022 issued by DXC (DXC Notes) and 4.450% senior notes due 2022 issued by the company’s wholly-owned subsidiary Computer Sciences Corporation (CSC Notes).

It revealed that $274.5 million aggregate principal amount of DXC Notes were outstanding as of Mar 16, while under the CSC Notes it was $170.8 million. The tender offer will expire at 5 p.m. on Mar 22, unless extended or early terminated by the company.

DXC will fund the redemption of the aforementioned senior notes through its available cash in hand. As of Dec 31, 2020, the IT services company had cash and cash equivalents of $3.92 billion.

The company’s latest tender offer to redeem senior notes reflects its commitment toward reducing overall outstanding debt.

Notably, DXC was formed in 2017 by the merger of Computer Sciences Corp. and the enterprise services unit of Hewlett Packard Enterprise (HPE - Free Report) . CSC, prior to the completion of the merger, took additional debt. This has amplified DXC’s total long-term liability, thereby, increasing its interest-cost burden. At the end of fiscal 2020, the company had total outstanding debt (net of current maturities) of $8.67 billion.

To lower its debt burden, the company has resorted to spin-off and the divestment of non-core assets. Toward this, DXC spin off its U.S. State and Local Health and Human Services business last year and sold it to the private equity firm Veritas Capital for $5 billion.

In June 2020, DXC announced that it entered an agreement to sell its healthcare software provider business unit to privately-held Dedalus Group for a total cash consideration of $525 million. The transaction is anticipated to complete this March.

The strategy has helped it significantly reduce its outstanding debt level to $5.44 billion as of Dec 31, 2020, from $8.67 billion as of Mar 31, 2020.

Additionally, spinning off non-core assets improves DXC’s focus on its core businesses. Also, it enhances the firm’s ability to execute acquisition strategies across high-growth businesses, including enterprise software-as-a-service, technology security solutions, and autonomous driving.

DXC currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Apple (AAPL - Free Report) and Facebook , both carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rates for Apple and Facebook are currently pegged at 11% and 19.2%, respectively.

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