Network storage provider
) issued 3.375% convertible senior notes of $500 million in
aggregate principal amount. The notes are set to mature in 2021.
The offering is expected to close on Jun 5, 2014 subject to
customary closing conditions.
The $500 million senior notes carry coupon yields of 3.426% to
compensate investors for the associated risk. The net proceeds from
the issuance will be utilized for general corporate purposes.
Goldman, Sachs & Co., J.P. Morgan Securities LLC, and Morgan
Stanley & Co. LLC will act as joint book-running managers for
the offering while Citigroup Global Markets Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, and Wells Fargo
Securities, LLC will be acting as co-managers.
During the fourth quarter of fiscal 2014, NetApp's interest expense
was $6.4 million, down from $6.7 million reported in the previous
quarter. However, the current debt offering will increase its
Despite the given scenario, the company has a very strong balance
sheet with cash, cash equivalents and investments of $5.00 billion
and a long-term debt balance of $995.5 million. The issuance of
these notes will increase the company's total debt to $1.49 billion
from $995.5 million.
NetApp remains well positioned given the strong demand for its
storage operating system - Data ONTAP - and flash solutions. The
company's workforce reduction initiatives could also pave the way
for operating cost rationalization that would support margins. In
the recently reported quarter, the company spent $49.2 million on
dividends and used $374 million to repurchase its common stock.
We believe that the strong balance sheet will help NetApp to
capitalize on investment opportunities and make strategic
acquisitions, further improving its growth prospects. We also
believe that the senior notes offering will bring down its cost of
capital, thus strengthening the balance sheet and supporting future
However, soft demand from the U.S. federal agencies and constricted
IT spending remain headwinds. Competition from
) also poses a challenge for the company.
Currently, NetApp has a Zacks Rank #3 (Hold). Some better-ranked
stocks worth considering in the technology sector are
Micron Technology Inc.
Juniper Networks, Inc.
), both carrying a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
EMC CORP -MASS (EMC): Free Stock Analysis
NETAPP INC (NTAP): Free Stock Analysis Report
JUNIPER NETWRKS (JNPR): Free Stock Analysis
MICRON TECH (MU): Free Stock Analysis Report
To read this article on Zacks.com click here.