NCR Issues Senior Notes in Two Parts - Analyst BlogThursday, December 06, 2012
NCR Corp. (NCR) recently commenced an offering of senior unsecured notes worth $900.0 million for institutional buyers in the U.S. The notes will mature in 2021. NCR International Inc. and Radiant Systems Inc. will serve as guarantors for the notes issued.
The first part of the notes offering will raise $400.0 million but information regarding interest rate of these notes was not divulged. The notes have been assigned an issue-level rating of “BB+“and a recovery rating of “5” by Standard & Poor’s. The rating indicates that the borrower’s financial condition is stable and it is capable of meeting roughly 10.0%-30.0% of principal amount in case of any default. The credit ratings act as financial indicators for potential investors.
Apart from this, NCR also issued $500.0 million unsecured senior notes carrying an interest rate of 4.625%.
The raised amount along with other revolving credit facilities will enable NCR to fund the acquisition of a software company Retalix Ltd. for a sum of $650.0 million, announced last week. In case of any untoward situation regarding the wrapping up of the acquisition, the fund will be used to finance its general corporate expenses including pension-related expenses.
As of September 30, 2012, NCR had a total debt balance of $1.46 billion, roughly double of $740.0 million in the prior quarter. The senior notes balance at the end of the third quarter 2012 was $600.0 million, up from $5.0 million in the preceding quarter.
NCR exited the third quarter with $581.0 million in cash and cash equivalents, up from $377.0 million reported in the previous quarter. During the quarter, debt-capitalization ratio was 58.9%, up from 43.0% in the previous quarter. This raises our concern.
Following the recent issuance, the senior notes balance will go up by an additional $500.0 million. This will impact debt capitalization in the coming quarters. Also, the raised debt burden will have an impact on its interest charges. Interest expense in the third quarter was $7.0 million or 4 cents per share, which is quite significant.
Overall, NCR’s performance was decent in the third quarter with the bottom line surpassing the Zacks Consensus Estimate. The company’s operating segments performed well barring the Retail solutions segment. The company has also provided decent fiscal year guidance and believes that it is well positioned to deliver good momentum across all its businesses.
We remain positive about NCR’s deal wins from various industrial sectors. But a high debt burden, European exposure and stiff competition from Diebold Inc. (DBD) and Wincor Nixdorf in the ATM market keep us concerned.
Currently, NCR has a Zacks Rank #3, (Hold).
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