Now that the proposed acquisition of
NYSE Euronext Inc.
) is nearing culmination, the latter has issued long-term notes
worth $1.4 billion in a two-part offering.
The first set comprises $600 million worth of notes at an
interest rate of 2.5%. These notes are slated to mature in 2018.
The remaining $800 million worth of notes bear an interest rate
of 4.0% and are due to mature in 2023. Both the 5-year and
10-year notes, along with IntercontinentalExchange's $1.8 billion
of revolving credit facility and $1.0 billion cash, will be used
to fund the cash component of the upcoming NYSE acquisition.
Concurrently, Moody's Investor Service assigned an "A3" rating
on the senior debt of the holding company of
IntercontinentalExchange, with a stable outlook. The ratings
agency also affirmed the "A3" rating on NYSE's senior debt, and
lifted its outlook to 'stable' from 'developing.'
Nevertheless, the raised debt for NYSE acquisition will
deteriorate the financial leverage substantially in the near
term, from a debt-to-EBITDA of 1.2x at 2012-end to about 2.2x
post acquisition. The projected combined debt will stand at about
$4.7 billion in the merged entity.
The wariness is also shown by Moody's and Standard &
Poor's Ratings Services (S&P), who had downgraded NYSE's
long-term debt rating to "A" from "A+" in Mar 2013 and put a
CreditWatch on the company. A CreditWatch acts as a red
flag and allows a company to monitor its actions before causing a
detrimental effect on ratings.
On the other hand, management expects to improve this ratio to
below 1.5x as soon as possible, backed by Moody's ratings on both
the companies. Moody's is optimistic about the inflated synergies
from the merged entitythat will bring forth a strong competitive
advantage by creating an end-to-end multi-asset portfolio and by
diversifying across the globe, while also vigorously tapping new
opportunities in the emerging economies.
Moreover, Moody's opines that the proceeds from the
disposition of Euronext platform is expected to be utilized for
debt reduction. In Aug 2013, NYSE and IntercontinentalExchange
announced the plan to raise about $1.0 billion from the disposal
of a stake in NYSE's Euronext platform through an IPO, which is
expected to culminate in 2014.
However, Moody's also cited prominent risks related to the
integration and execution of the merged entity, which will have a
vast scale of operations. Inability to deliver strong financial
results and synergies from operations may also pose a downward
Yesterday, both NYSE and IntercontinentalExchange received
unconditional approval from the Committee of Euronext Regulators.
A final consent from the European national regulators is awaited
before a solid business combination comes into existence. With
most of regulatory approvals been successfully attained, the
merger is in its final leg and is expected to culminate before
the end of 2013.
While both NYSE and IntercontinentalExchange carry a Zacks
Rank #4 (Sell), outperformers in the financial sector include
American Express Co.
Global Cash Access Holdings Inc.
). Both these stocks carry a Zacks Rank #2 (Buy).
AMER EXPRESS CO (AXP): Free Stock Analysis
GLOBAL CASH ACS (GCA): Free Stock Analysis
INTERCONTINENTL (ICE): Free Stock Analysis
NYSE EURONEXT (NYX): Free Stock Analysis
To read this article on Zacks.com click here.