The distributor of air conditioning, heating, and refrigeration equipment, Watsco, Inc. (WSO) has announced refinancing of its existing unsecured revolving credit agreement. The amended deal now offers borrowings worth up to $600 million against $500 million under the prior agreement.
The amended credit facility will now mature on Jul 1, 2019, instead of Jul 1, 2018, while other terms under the facility remain unchanged. JPMorgan Chase Bank – a unit of JPMorgan Chase & Co. (JPM) – served as the administrative agent of the offering. The credit facility was also co-led by Bank of America (BAC) and Wells Fargo Bank – a subsidiary of Wells Fargo & Company (WFC), as syndication agents. U.S. Bank National Association acted as documentation agent.
The amendment will provide low cost debt capital which is in line with Watsco’s growth strategy. The company will use the proceeds under this facility for working capital, acquisitions, dividends and other general corporate purposes.
On Jul 2013, Watsco entered into refinancing of unsecured revolving credit agreement worth $500 million. The amendment includes improvement of covenant flexibility and extension of maturity date.
Watsco’s adjusted earnings improved 23% year over year to a record 48 cents per share in first-quarter 2014 aided by higher sales, stronger selling margins and improved operating efficiencies. Total revenue also increased 7% year over year to a record $763 million.
Watsco recorded cash and cash equivalents of $19.5 million as of Mar 31, 2014, which remained flat compared with Dec 31, 2013. Cash flow from operating activities was $24.9 million in the reported quarter, compared with cash usage of $17.5 million in the prior-year quarter.
Management outlined its long-term plans to increase revenues to above $10 billion and margins to above 10%. Watsco will continue to benefit from demand in the replacement market as old units get replaced by more energy-efficient units in the coming years.
Watsco believes that its operating cash flows, cash on hand and funds available for borrowing will be sufficient to meet liquidity needs in the future. Though, capital markets and credit markets are also important sources which help to meet financial commitments and short-term liquidity needs of Watsco.
Thus, disruptions in these markets could adversely affect the company as it will result in increased borrowing costs and reduced borrowing capacity. Moreover, the volatility in housing starts and lack of potential acquisitions remain concerns for Watsco.
Watsco currently has a Zacks Rank #2 (Buy).
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