On Monday, NYSE Euronext Inc. vended of senior notes worth $850 million that were underwritten through a public offering. This marks the company’s first dollar-denominated note sale after about four years.
Accordingly, NYSE issued the 5-year senior notes at $99.669 with a coupon rate of 2.0%. These are scheduled to mature on October 5, 2017. Additionally, the $850 million notes bear a yield of 2.07% and a spread of 145 basis points (bps) above the Treasury. The notes are wholly callable at 25 bps, while interest is payable semi-annually, the first payment being on April 5, 2013.
NYSE appointed BofA Merrill Lynch of Bank of America Corp. (BAC - Analyst Report) , Morgan Stanley (MS - Analyst Report) , JP Morgan Chase & Co. (JPM - Analyst Report) and Citigroup Inc. (C - Analyst Report) as the joint book-running managers for the sale. The above-mentioned notes are rated “A3” and “A+” by Moody’s Investor Service of Moody’s Corp. (MCO - Analyst Report) and Standards & Poor’s (S&P), respectively.
NYSE expects to utilize the net proceeds from the notes sale to redeem $750 million of notes that are due to mature in June 2013. These notes carry an interest of 4.8%. Moreover, the company plans to use the remaining takings to buyback some or all of notes worth €250 million ($323 million). These €250 million of notes are part of the €1.0 billion notes that bear an interest of 5.375% and are slated to mature in 2015.Some of the earnings from the notes are also expected to be used for general business operations.
However, S&P has been wary of NYSE’s liquidity of late. While the rating agency affirmed the company’s counterparty credit rating at “A+/A-1,” senior unsecured debt at “A+” and its commercial paper at “A-1,” its outlook was revised to negative from stable in August 2012.
The revised outlook elucidates on the rating agency’s creditability, since the company’s cash and operating cash flow appear under pressure and does not look impressive. Moreover, as a result of higher capital expenditure and debt, NYSE’s debt-to-EBITDA ratio also deteriorated to 2.1x from 1.6x recorded at the end of 2011, which was the lowest level since the inception of this organisation in April 2007.
Nevertheless, the senior unsecured revolving credit facility worth $1 billion that the company entered during the second-quarter 2012, scheduled to mature on June 15, 2015, along with the latest notes sale is expected to provide cushion to NYSE’s liquidity crunch. Yet, higher borrowing costs could again weigh on the margins.
NYSE is scheduled to release its third-quarter 2012 earnings before the bell on November 6, 2012. The Zacks Consensus Estimate pegs NYSE’s earnings for the third quarter at 46 cents per share, which is about 35% lower than the year-ago quarter. For 2012, earnings are expected to dip about 21% over 2011 to $1.95 per share. However, the stock is expected to rebound in 2013.
NYSE currently retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating and indicates a strong downward pressure on the stock in the near term. The long-term recommendation also remains Underperform.