Lam Research CorporationLRCX recently announced the pricing of senior notes aggregating $2.4 billion. These bonds have been issued in three tranches of $800 million, $600 million and $1,000 million with varying coupon rates and maturity dates. The offering is expected to close on Jun 7 18, 2016, subject to customary closing conditions.
The $800 million notes, carrying an annual interest rate of 2.800%, will mature in 2021. The $600 million and $1,000 million senior notes, with an annualized interest rate of 3.450% and 3.900%, are due to mature in 2023 and 2026, respectively.
Management stated that the net proceeds would be used to fund the potential acquisition of KLA-Tencor Corporation KLAC and to prepay KLA-Tencor's outstanding term loans. The deal which was announced last year is expected to close in the third calendar quarter of 2016, pending final regulatory approval.
Lam's proposed senior notes were assigned the "Baa1" rating with a stable outlook by Moody's Investors Service - the credit rating agency of Moody's Corporation.
Moody's remains optimistic about the benefits from the acquisition of KLA-Tencor. Moody's expects that the combined company will contribute significantly toward sustainable growth, generating cash and creating value. The deal will make Lam Research the second largest semiconductor equipment company after Applied Materials Inc. AMAT , which is currently the biggest and broadest player in the same space.
The rating agency also expects Lam Research to focus on debt reduction after closing the acquisition and reduce adjusted gross debt to EBITDA to 2.5x by calendar 2017 and below 2.5x by 2018.
Moody's Richard Lane said that "the benefits of increased scale and diversification from the acquisition will mitigate the anticipated increase in debt and leverage."
Moody's assigned a stable outlook on the rating based on its expectation that Lam Research will maintain its strong market position and continue its solid business execution. The agency believes that its improving performance will continue in the future as well.
Lam Research is one of the largest global manufacturers of semiconductor equipment. The company reported mixed fiscal third-quarter 2016 results with earnings outperforming our estimates but revenues lagging. Revenues and shipments were above the midpoints of the guidance. Gross margin, operating income and non-GAAP EPS were above the high-end of the guided range.
Lam Research carries a Zacks Rank #3 (Hold). A better-ranked stock is Advanced Energy Industries, Inc. AEIS , sporting a Zacks Rank #1 (Strong Buy).
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