Global data center service provider Equinix Inc. (EQIX) recently commenced a public offering of senior notes worth $750.0 million. Equinix filed for the registration with the U.S. Securities and Exchange Commission. The senior notes will mature in 2021. J.P. Morgan Securities LLC and Citigroup Global Markets Inc. are acting as administrative agents for the purpose, along with certain other lenders. The offer will cease on July 13.
The notes have been assigned ratings of “BB-“ by Standard & Poor’s and “Ba2” by Moody’s Corp. (MCO). The ratings indicate that the obligator currently has the capacity to meet its financial obligation but faces major uncertainties that could impact its commitment. The credit ratings act as financial indicators for potential investors.
Management stated that this is an enhancement of the previously announced $500.0 million offering. These notes will bear an interest of 7.0% and will be paid on a half-yearly basis. Equinix expects to raise a fund of roughly $736.0 million, net of all offering-related expenses.
The raised amount will enable Equinix to increase fund availability and finance its continuing working capital requirements, capital expenditure, facilitate the repayment of its 2.50% convertible subordinated notes due in 2012 and also fund potential acquisitions.
Equinix already has a senior notes balance of $750.0 million, which will go up another $750.0 million after this issue. However, the repayment of convertible notes will bring down the total liability.
Equinix exited the first quarter with $456.7 million in cash and cash equivalents, down from $592.8 million reported in the previous quarter. It bears a total debt (senior notes plus convertible debt) of $1.67 billion, roughly unchanged from the previous quarter.
The company is expanding its current facilities and client-base by setting up many new data centers across the world. While this is a positive in terms of Equinix’ future growth prospects, the continued investment in capital may tell on its near-term results. We fear that the company could also see a cash crunch. That said, we remain optimistic about the Equinix’s recurring revenue model and potential revenue streams likely to result from its expansion plans.
Stiff competition from leading network providers, such as AT&T Inc. (T) and Verizon Inc. (VZ) and its European exposure will remain concerns.
Equinix has a Zacks #3 Rank, implying a short-term Hold rating.
