Alcatel-Lucent to Reimburse Credit - Analyst Blog

Alcatel-Lucent ALU recently announced its plan to reimburse its Senior Secured Credit Facility amounting to $1,750 million. The company has offered convertible bonds that can be exchanged for its shares.

The company is offering the facility in two classes- 2019 bonds having the nominal amount of €600 million ($822.29 million) valid till Jan 30, 2019 and 2020 bonds with amount of  €400 million ($548.19 million) having a maturity date of Jan 30, 2020.

The bonds issuance for both of these can be increased by 10% to €660 million ($904.52 million) and €440 million ($603.01 million) for 2019 and 2020 bonds, respectively, provided that the over-allotment options are exercised before Jun 5, 2014.

The company intends to utilize the proceeds from this offering to repay debt under its Senior Secured Credit Facility, the initial amount being $1,750 million. This issuance is a strategic move by the company per its ‘The Shift Plan' to improve its debt levels. At the end of the last reported quarter (first-quarter 2014), the company had a net debt of €160 million ($219.28 million).

The par value for 2019 bonds will be based on a premium of 35% – 40% over the company's reference share price (the average share price from the opening of Jun 2, 2014 until the final term of the bonds), whereas for the 2020 bonds the premium will be in the range of 32% – 37%.

The 2019 bonds will be issued at par value on Jun 10, 2014 and is scheduled to be redeemed at par value on Jan 30, 2019 whereas the 2020 bonds will be issued at par value on Jun 10, 2014 but will be redeemed at par value on Jan 30, 2020.

Alcatel-Lucent will start reimbursing these notes from Aug 19, 2014 because the proceeds received before the above mentioned time period will be undertaken at 101% of the par value. Prior to this issuance, the company has been reimbursing €274 million ($375.51 million) senior notes that are scheduled to mature in Apr 2015.

The 2020 bonds will be bearing an interest rate of up to 0.25%. However, for the 2019 bonds there is no interest to be borne. The interest on the 2020 bonds will be paid half-yearly on or near Jan 30 and Jul 30 starting 2015. The interest between Jun 10, 2014 and Jan 29, 2015 will be calculated proportionately with the time.

The company is now halfway through its ongoing repositioning as per ‘The Shift Plan' that was formulated in 2013 to transform itself from being a telecom generalist to a specialist in IP networking and Ulltra-Broadband services. It has shifted its focus from the older technologies (2G and 3G wireless equipment) to high potential newer ones like Internet routing. As per this plan, management intends to trim costs by approximately 15% by 2015.

By the end of the first quarter 2014, the company had achieved fixed cost savings of about €143 million ($196.0 million). The consolidated fixed cost savings under the plan stood at €478 million ($655.1 million).

Presently, Alcatel-Lucent has a Zacks Rank #3 (Hold). Other stocks in the industry worth considering at the moment include Harmonic Inc. HLIT, Premiere Global Services, Inc. PGI and SeaChange International Inc. SEAC, each carrying a Zacks Rank #2 (Buy).