ADT Inc (NYSE: ADT) announced that its wholly-owned indirect subsidiary, The ADT Security Corporation, would issue the $1 billion notes to repay its debt.
Lowering Leverage: ADT, through its indirect wholly-owned subsidiary (issuer of the notes), would be raising funds through an issue of senior secured notes worth $1 billion. The proceeds of the notes would help the company to meet its near-term financial obligations. In addition, it will also help the company focus on its business operations and improve its profitability.
As per the company, the company will be raising the fund through QIP (qualified institutional buyers or placement) that too to Non-U.S investors. The first-priority senior secured notes carry a 4.125% coupon rate, with an expiry in 2029.
Redeem near-term notes: Proceeds received from the issue of the first-priority senior notes will be used to redeem or repay $1,000 million of debt, having a 3.5% coupon rate getting matured in 2022. The company will use the proceeds for the payment of fees of the issue of notes and other expenses. The notes are expected to increase the debt, and this may increase its financial obligations as interest outgo is expected to increase. As a result, it will impact profitability. However, in the near term, the measures taken by ADT will enable them to redeem notes. Further, it will reduce the near-term burden in terms of payment of debt.
As per the company release, the ADT’s long-term debt at the end of the first quarter of 2021 stood at $9,446 million or $9.45 billion. The company in the first quarter raised a total of $11 million of the long-term borrowings in the first quarter. On the other hand, long-term borrowing repayments, including premiums, stood at $18 million. Given the leverage on the book, which is expected to hurt profitability, the investors are a bit conscious of the stock performance.