The world’s largest computer products distributor, Ingram Micro Inc. (IM) has entered into an underwriting agreement with some investment bankers to sell $500 million worth of Senior Unsecured Notes. Notes, carrying a coupon rate of 4.950% and set to mature in 2024, will be issued at a discounted price of 99.649%.
Ingram Micro will use $385 million of the net proceeds from the issuance to repay borrowings under its revolving trade accounts receivable-backed financing program in North America. The rest will be used for general corporate purposes, such as, working capital, repayment of other debts, capital expenditure, acquisitions and investments.
Per the company, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. LLC are acting as joint underwriters for the offering. The company has a total borrowing capacity of $675 million under its North American trade accounts receivable-backed financing program which is going to expire in Nov 2015.
The new Notes carry a lower coupon rate than the previous two — $300 million of 5.25% Notes due 2017 and $300 million of 5.00% Notes due 2022. So they new notes will lower the average interest cost of Senior Unsecured Notes.
Borrowing costs are still low, enabling companies to obtain easy financing. Corporate bonds and borrowings from banks are in high demand as the U.S. treasuries are offering low rates. We believe that these Notes will provide financial flexibility to the company to drive long-term growth.
Ingram has a very strong balance sheet with cash and cash equivalents of $497.8 million and a long-term debt balance (including current portion) of $1.13 billion. The issuance of these Notes along with repayment will bring the company’s total debt position to approximately $1.25 billion.
We believe that the strong balance sheet will help Ingram to capitalize on investment opportunities and make strategic acquisitions, further improving its growth prospects. We also believe that the senior notes offering will bring down its cost of capital, thus strengthening the balance sheet and supporting future growth.
However, competition in the retail/wholesale computer peripherals market from other players such as PCM Inc. (PCMI) and Tech Data Corporation (TECD) remains a headwind. Sluggish macroeconomic conditions and a shrinking PC market are the other challenges in the near term.
Currently, Ingram Micro carries a Zacks Rank #3 (Hold). A better-ranked stock in the retail/wholesale computer peripherals industry worth considering is PC Connection Inc. (PCCC) with a Zacks Rank #2 (Buy).
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