On May 22, 2012, medical technology major
) announced the pricing of a two-part offering of senior notes by
its subsidiary, Covidien International Finance S.A. (CIFSA). It
priced 1.350% senior notes for the aggregate principal amount of
$600 million due 2015 and 3.200% senior notes for the aggregate
principal amount of $650 million due 2022. The company expects the
offering to close on May 30, 2012.
The total proceeds of $1.25 billion from this offering will be
utilized to finance the redemption of CIFSA's outstanding 5.450%
senior notes due in October 2012. These senior notes accounted for
$500 million of the company's long term debt at the end of fiscal
The company will use more than half of the total proceeds for
general corporate purposes. This implies that existing debt
refinancing is not the primary intention of the company and it
wants to ensure sufficient liquidity through this offering.
However, this reflects CIFSA's high dependence on debt financing,
which could be a result of lack of earnings to support operations
and maintain adequate capital.
The company last sold debt during the fourth quarter of fiscal
2010 to finance the acquisition of ev3 Inc., which develops and
markets vascular devices. Also worth mentioning in this context is
Covidien's recently announced acquisition of Newport Medical
Instruments, Oridion Systems Limited and superDimension. As
earlier, Covidien may also use the proceeds to finance a part of
its recent acquisitions.
The book-running managers for the senior note offering are BNP
Paribas Securities Corp., Citigroup Global Markets Inc, a division
) and Deutsche Bank Securities Inc. under
). CIFSA claimed that the senior notes will be unsecured
obligations ranked at par with all its existing and future senior
The company still has a number of outstanding debt including
senior notes due in June 2013, June 2015 and October 2017. We think
the company will continue to restructure its debt to stay afloat.
Covidien business segments overlap with those of its competitors
Becton, Dickinson and Company
Johnson and Johnson
CR Bard Inc.
) among others. The stock currently retains a Zacks #3 Rank, which
translates into a short-term Hold rating. We also maintain our
long-term Neutral recommendation on the stock.
BARD C R INC (BCR): Free Stock Analysis Report
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COVIDIEN PLC (COV): Free Stock Analysis Report
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