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NiSource's Unit Closes $500M Notes Issue, to Refinance Debt

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NiSource Inc.‘s (NI - Free Report) finance subsidiary, NiSource Finance Corp., recently concluded the previously announced sale of notes worth $500 million in an underwritten public offering. The notes carrying an interest rate of 2.650% per year are set to mature in 2022.

NiSource’s subsidiary intends to use the proceeds from the sale of the notes to repay its $500 million term loan, which is due Mar 29, 2019.

Recent Issue

During the month of September, the company sold notes worth $750 million, carrying an interest of 3.950%, due 2048. The company expressed intention to fund capital expenditures, general corporate expenses and repay short-term borrowings. (Read more: NiSource Issues $750M Notes to fund Capital Expansion)

Debts Remain a Woe

NiSource has been reeling under the burden of its debt levels for quite some time now. Notably, the company has been exposed to certain risks in relation to its current debt level standing. Its debt level position as of Sep 30, 2017 is pegged at $8.7 billion, higher than $6.1 billion at 2016 end. Notably, it has approximately $1.3 billion of available liquidity as of the same time.

Additionally, the debt-to-capital level ratio of the company is currently pegged at 63.3%, much higher than the S&P 500 level of 42.7%. In addition, the current ratio of the company is 0.52, considerably lower than the S&P 500 level of 1.35.

Our view

Even with significantly high debt levels, the company is currently trying to make the most of its investment strategy of strengthening existing infrastructure and focus on clean energy. Notably, it posted results in line with estimates in third-quarter 2017.

It is, however, evident that company is trying to undertake steps that will reduce the significantly high-debt levels and also improve the current liquidity standing. We expect the company to perform better if it is able to reduce its debt burden. Notably, we expect the aforementioned issue of notes to aid the company to refinance a part of its debt. Further, it will help the company to extend its debt maturity period by another three years starting 2019, and keep the borrowed capital invested in the business for a longer time without having to repay it before 2022.

Price Movement

Shares of NiSource outperformed the industry in the last six months. The company’s shares have gained 9.7% compared to the industry’s gain of 7.5%.

Such outperformance can be attributed to the company’s 100% regulated business model that is benefiting from ongoing regulatory investments. Additionally, the company has been gaining from increasing demand due to its improving customer base.

Zacks Rank & Other Stocks to Consider

NiSource currently carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the same industry include PNM Resources, Inc. (Holding Co.) (PNM - Free Report) , UNITIL Corporation (UTL - Free Report) and Atlantic Power Corporation (AT - Free Report) . Each of the stocks carries the same Zacks Rank as NiSource. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PNM Resources reported third-quarter 2017 earnings from continuing operations of 93 cents per share, beating the Zacks Consensus Estimate of 85 cents per share by 9.4%. It 2017 estimates increased to $1.86 per share from $1.85 per share in the last 30 days.

UNITIL posted third-quarter 2017 earnings from continuing operations of 16 cents per share, beating the Zacks Consensus Estimate of 11 cents per share by 45.5%. It 2017 estimates increased to $2.03 per share from $1.98 per share in the last 30 days.

Atlantic Power posted third-quarter 2017 earnings from continuing operations of 3 cents per share, beating the Zacks Consensus Estimate of 2 cents per share by 50%. It 2017 estimates have narrowed to a loss of 22 cents per share from a loss of 27 cents per share in the last 30 days.

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