), a medical products company focused on integrating rapid
diagnostics with health management, has completed its offering of
$450 million aggregate principle amount of senior notes. The
senior notes carry an interest rate of 7.250% per year, which is
payable every six months on Jun 15 and Dec 15, until maturity on
Jul 1, 2018 (unless redeemed earlier).
The debt financing will help Alere redeem its outstanding $250
million aggregate principal amount of 7.875% senior notes due
2016. Moreover, Alere plans to use the rest of the proceeds to
repay the outstanding revolving borrowings under its credit
agreement. The amount left will be utilized as working capital
and for general corporate purposes, to ensure sufficient
According to the company, the rest of the funds will be used to
finance potential buyouts, share repurchases and capital
expenditures. Alere also plans to make earn-out payments for
acquisitions completed earlier.
Exiting the third quarter, Alere had a debt-to-capital ratio of
61.7% compared with peers' mean of 30.9%. Following the
completion of the senior note offering, the ratio increased to
63.3%. However, Alere's high dependence on debt financing with a
higher debt-to-capital ratio that towers over its peers' mean,
remains a matter of concern.
Net interest expense in the third quarter was $55.9 million, down
76% year over year. Given Alere's solid cash position (cash and
cash equivalents of $302.3 million, up 9.2% year over year), we
believe that the company will be able to meet its higher interest
expense going forward. However, the higher interest expense might
be a drag on Alere's bottom line.
The company continues to grow revenues through the organic and
inorganic route. Further, Alere's product pipeline is strong,
which has developed through a combination of product innovation
and serial acquisitions. We currently have a long-term 'Neutral'
recommendation on the stock, which carries a short-term Zacks #3
Rank (Hold). Its peer in the professional diagnostic market,
Johnson & Johnson
) carries a Zacks #2 Rank (Buy).
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