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RBC Bearings' (ROLL) Equity, Debt Offerings to Fund DODGE Buyout

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RBC Bearings Incorporated (ROLL - Free Report) yesterday announced the completion of an offering of $500 million worth of senior notes by its wholly-owned subsidiary, Roller Bearing Company of America, Inc.

The notes offering is part of financing actions taken by RBC Bearings to finance the pending acquisition of ABB Asea Brown Boveri Ltd.’s Dodge Mechanical Power Transmission business. The acquisition deal, announced in July, has been valued at $2.9 billion and is anticipated to be complete in third-quarter fiscal 2022 (ending December 2021).

In the last day’s trading session, RBC Bearings’ shares gained 2.58%, closing at $219.74.

Inside the Headlines

Regarding the senior notes offering, the company stated that only qualified institutional buyers from the United States and non-U.S. persons from outside the United States participated. The senior notes carried a coupon rate of 4.375% and are due to mature on Oct 15, 2029. Interest payments on the notes will be done semi-annually, with payments every year on Oct 15 and Apr 15. The first interest installment will be paid on Apr 15, 2022.

In addition to the notes offering, RBC Bearings issued 3.45 million of common and 4.6 million stocks of 5.00% Series A mandatory convertible preferred stock to raise funds for the DODGE buyout. Part of the net proceeds of $1.5 billion might be used for paying buyout-related fees and expenses, and satisfy general corporate purposes.

The common and preferred stock offerings were completed on Sep 24, 2021. Of the 4.6 million preferred stocks issued, 4 million stocks were issued to the public and 0.6 million stocks were issued to the underwriters in connection with a 30-day option granted to them. Each preferred stock for the public was priced at $100 and the underwriters were given discounts of $3.00 per share. The liquidation preference for each stock is $100.

The annual dividend rate for the preferred stocks is 5% and payouts will be made quarterly on Jan 15, Apr 15, Jul 15 and Oct 15. The dividend payments will be applicable from Jan 15, 2022, to Oct 15, 2024. Each preferred stock can be converted into common shares on Oct 15, 2024, using conversion rates between 0.4413 and 0.5405. Conversion prices will be between $185.00 per share and $226.63 per share.

For the common stock issue, 3 million common shares were issued to the public and 0.45 million shares were issued to the underwriters. The public offer price is $185.00 per share and the underwriters have been granted a discount of $9.25 per share.

Efforts are also being made by RBC Bearings to secure at max $1.3 billion from a term-loan facility and $500 million from a revolving facility.

We believe that the above-mentioned common stock offering along with preferred stocks, when converted into common stock, will increase the company’s common stock outstanding balance. Also, the issuance of senior notes as well as term-loan and revolving facilities might inflate the debts. Exiting first-quarter fiscal 2022 (ended Jul 3, 2021), RBC Bearings’ shares outstanding were 25.3 million and its long-term debts were $10.8 million.

Zacks Rank, Price Performance and Estimate Trend

With a market capitalization of $5.5 billion, RBC Bearings currently carries a Zacks Rank #3 (Hold). Strength in industrial markets, healthy backlog and favorable shareholder-friendly policies are beneficial. However, the persistence of weakness in the aerospace markets is concerning.

In the past three months, the company’s shares have gained 10.8% against the industry’s decline of 8%.


Zacks Investment ResearchImage Source: Zacks Investment Research


In the past 60 days, the Zacks Consensus Estimate for its earnings has been unchanged at $1.05 per share for the second quarter of fiscal 2022 (ending September 2021). The consensus estimate for fiscal 2022 (ending March 2022) at $4.49 and for fiscal 2023 (ending March 2023) at $5.14 reflects no change from the 60-day-ago figures, respectively.

Stocks to Consider

Three better-ranked stocks in the industry are Helios Technologies, Inc. (HLIO - Free Report) , Nordson Corporation (NDSN - Free Report) and Applied Industrial Technologies, Inc. (AIT - Free Report) . While Helios and Nordson presently sport a Zacks Rank #1 (Strong Buy), Applied Industries carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for these companies have improved for the current year. Further, positive earnings surprise for the last reported quarter was 39.53% for Helios, 14.15% for Nordson and 27.97% for Applied Industrial.