Brookfield Infrastructure Partners LP BIP entered into an agreement to sell $500 million aggregate principal amount of Series 8 medium-term notes. This is likely to close on Sep 1, 2020, subject to customary closing conditions.
The notes will be issued in accordance with a base shelf prospectus released on Nov 23, 2018 and a related prospectus supplement plus a pricing supplement dated Aug 27, 2020.
Details of the Notes
The notes will be due on Sep 1, 2032 and carry an interest rate of 2.855% per annum with the interest being payable on a semi-annual basis. The notes will be guaranteed by Brookfield Infrastructure and some of its key holding subsidiaries. Brookfield Infrastructure Finance ULC, a subsidiary of the company, will be the beneficiary of the net proceeds and also bear the responsibility of any payment on the notes.
Motive Behind the Act
The company is fully tapping this opportunity of issuing new debts with low interest rates. Further, it is utilizing the proceeds to repay its existing high-interest bearing old debts. Remarkably, the net proceeds will be used to redeem its 3.452% medium-term notes due Mar 11, 2022, which were rated BBB+ by Standard & Poor’s rating services. Also, some portion will be kept aside for general working capital purposes.
The aim of the aforementioned transaction is to reduce the company’s cost of financing.
Current Debt Situation
Currently, the company’s total debt to total capital is pegged at 52.76%, comparing favorably with the industry average of 59.68%. Its times interest earned ratio stands at 1.74 in the June quarter, lower than 1.97 in the March quarter. Though the ratio decreased in the second quarter, times interest earned ratio of more than 1 indicates that the company will be able to meet its near-term debt obligations.
Interest expenses of the company at the end of first-half 2020 were $529 million, up from $453 million in the year-ago period.Thus, refinancing of debts will allow the company to lower its capital-servicing expenses and boost its margins.
Other companies from the same sector are also capitalizing on this opportunity of near-zero interest rates to incur debt at cheaper rates and repay or refinance their debt obligations as well as reduce the debt-servicing costs. Recently, NiSource Inc. NI, Bloom Energy Corporation BE and Linde plc LIN among others opted for refinancing their debts.
Zacks Rank & Price Performance
Currently, the stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past three months, shares of the company have gained 10.8% against the industry’s fall of 5.6%.
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