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SR. NOTES EXTEND DEBT MATURITY TO 2029; RATING AGENCIES SEE STRONG FUNDAMENTALS
THE TD COWEN INSIGHT
In light of CES' improved financial performance, debt rating agencies recently increased CES' outlook to positive, paving the way for CES to go ahead with a senior unsecured note offering to replace its $250.0 million term loan. In light of prevailing interest rates, we view the coupon of 6.875% as attractive.
Event: CES announced the offering of $200.0 million 6.875% unsecured senior notes due 2029.
Impact: POSITIVE
Details: CES announced the offering of $200.0 million 6.875% unsecured senior notes due 2029 that will be used to repay its existing fully drawn $250.0 million term loan that was entered into less than 12 months ago (full report).
TD View:
We view CES' coupon of 6.875% as attractive in the context of current prime rate of 7.2% as well as recent debt issuances of comparable companies. In our view, this competitive interest rate is likely a result of recent debt rating agency upgrades and the company's robust free-cash-flow generation profile.
In its Q1/24 disclosures last week (full report), CES noted that it had reduced total debt by $40.1 million in Q2/24 to-date, highlighting that its cadence of free-cash-flow generation has increased into the second quarter, and likely bridges the gap between the $200.0 million senior unsecured note offering and the $250.0 million term loan without having to meaningfully increase the draw on its credit facility ($106.7 million drawn at March 31, 2024).
If CES continued with the term loan structure, CES would be required to pay $31.2 million in term loan principal repayments in the next 12 months. Moving to the senior unsecured note structure limits cash outflows to accrued interest, creating additional liquidity to pursue the NCIB once it renews in July 2024 and/or strategic tuck-in acquisitions that it referenced as a possibility on its Q1/24 conference call.
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