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Microchip (MCHP) Announces Pricing of $2B Notes Offering

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Microchip Technology Inc. (MCHP - Free Report) announced the pricing of two sets of unsecured senior notes offering totaling $2 billion. A $1 billion principal amount of senior notes due on Jun 1, 2021, will carry an interest rate of 3.922%. Meanwhile, the second $1 billion senior notes due on Jun 1, 2023, will carry an interest of 4.333%.

The offering, subject to the fulfillment of customary closing conditions, is expected to close on May 29, 2018. The notes will be offered to qualified institutional buyers only and in accordance with Rule 144A under the Securities Act of 1933, as amended.

The company plans to utilize the net proceeds from the proposed offering of the notes along with cash on hand, borrowings under its revolving credit facility and its latest term loan facility, to fund the cash concerns and other amounts payable in respect of its previously announced Microsemi Corporation acquisition.

Microchip expects to improve its liquidity and strengthen balance sheet through prudent investment decisions. The move provides flexibility to the company and helps meet its financial obligations in an efficient way.

Also, since unsecured notes can be borrowed at lower rates, this new debt will result in lower funding cost. This is likely to boost the financial flexibility of the company which already enjoys a decent balance sheet and ample liquidity.

The company exited fiscal 2018 with $2.2 billion of cash and short-term investments. During the fiscal fourth quarter, Microchip generated $359.6 million of operating cash flow.

We believe that the company has a strong balance sheet which will help it in capitalizing on investment opportunities and pursuing strategic acquisitions, improving growth prospects. Moreover, the senior notes offering will lower the company’s cost of capital, consequently strengthening balance sheet and supporting growth.

Zacks Rank & Stocks to Consider

Microchip has a Zacks Rank #3 (Hold).

Few better-ranked stocks in the broader technology sector include NVIDIA Corporation (NVDA - Free Report) , Texas Instruments Incorporated (TXN - Free Report) and Groupon, Inc. (GRPN - Free Report) , all sporting a Zacks Rank #1 (Strong Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA, Texas Instruments and Groupon have a long-term expected EPS growth rate of 10.3%, 9.6% and 6.5%, respectively.

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