Lender Processing Services, Inc.
) declared the price of its senior notes offering with a principal
amount of $600 million. Due in 2023, the senior notes carry an
interest rate of 5.75% and will be paid semi-annually.
The company expects the offering to be completed by October 12,
2012, upon the fulfillment of certain customary conditions.
Currently, the book-running managers for this notes offering are
Wells Fargo Securities, LLC, - a unit of
Wells Fargo & Company
), J.P. Morgan Securities LLC - a part of
JPMorgan Chase & Co.
), Merrill Lynch, Pierce, Fenner & Smith Incorporated - a wing
Bank of America Corporation
), SunTrust Robinson Humphrey, Inc. - an arm of
SunTrust Banks, Inc.
), U.S. Bancorp Investments, Inc. - a part of
) and Goldman, Sachs & Co - an investment division of
The Goldman Sachs Group, Inc.
The company plans to use the sale proceeds from this offering to
purchase senior notes, scheduled to expire on 2016, having a coupon
rate of 8.125%. Additionally, it intends to use the proceeds for
the repayment of Term B Loans in full, outstanding under its senior
credit facilities as well as for all the costs connected to these
Lender Processing also recently entered into a cash tender offer
for the $362 million principal amount outstanding on its 8.125%
senior note, which is due to mature in 2016.
The company has a strong balance sheet and cash flow position. Its
free cash flow increased 41% year over year to $115.0 million at
the end of the second quarter of 2012. Further, the company
strengthened its balance sheet by reducing around $54.0 million
debt including prepaying the compulsory payments under Term Loan A
through the end of 2013. Lender Processing's cash balance also
increased by $35.0 million sequentially to $138.5 million at the
end of second quarter 2012.
In the stringent regulatory landscape, the aforementioned offering
is expected to further strengthen the company's balance sheet as
well as bring down its cost of capital.
We believe that Lender Processing's technology-driven end-to-end
solutions for the mortgage and real estate industries as well as
contract renewals will aid generating modest business growth, going
forward. The company also lowered its risk profile by exiting
its unprofitable non-core business lines at the beginning of 2012.
Last but not the least; management is optimistic on the origination
market which is still not fully tapped. Improvement in free cash
flow, reduction in debt as well as continued margin expansion
enhances the bullish sentiments on the stock.
Lender Processing currently retains a Zacks #3 Rank, which
translates into a short-term Hold rating. Considering the company's
fundamentals, we also maintain a long-term 'Outperform'
recommendation on the stock.
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