Home |  Products |  Bios |  News |  Contact Us |  FAQ
  Independent Research on Corporate Bonds Since 1994 Preferences|Login

   July 29, 2014 @ 10:45 AM EDT
TODAY'S COMMENTS
8:54am Dollar Tree Yesterday, Dollar Tree (DLTR) announced it was acquiring Family Dollar Stores (FDO) for total...
Acquisition by Evan Mann, CFA
Yesterday, Dollar Tree (DLTR) announced it was acquiring Family Dollar Stores (FDO) for total consideration of $9.2 billion in cash and stock or 11.3x Family Dollar's LTM EBITDA (8.2x including expected synergies). The discount store retailer plans to permanently fund this transaction using a combination of $5.4 billion of term loans, this issuance of $2.8 billion of senior notes, $1.25 billion of revolver borrowings, and $569 million of cash on hand. At closing, Family Dollar shareholders will own 13-15% of Dollar Tree stock. Pro forma for this combination, DLTR expects its leverage ratio to increase to 5.6x from 3.3x for fiscal 2013. The transaction is expected to close by early 2015, be accretive to earnings within the first year and result in $300 million of synergies within three years. Cost savings are expected in the areas of sourcing and procurement, SG&A leverage, distribution and logistics efficiency, and format optimization. This acquisition will result in the DLTR becoming the largest discount retailer in North America, ahead of Dollar General. LTM pro forma revenues would be $18.4 billion with adjusted EBITDA of $2 billion. The new bonds expected to be issued related to this transaction will likely be rated below investment grade. We look for both credits to be downgraded. FDO currently has $300 million of 5% senior notes due 2021 outstanding (Baa3/BBB-). These bonds contain a change of control put and can be redeemed at any time using a make whole provision. Dollar Tree has three tranches of senior notes issued last September (Not Rated) totaling $750 million that also contain a make whole provision and could be redeemed. We intend to initiate coverage of DLTR over the near term.
TODAY'S REPORTS
Investment Grade
American Electric Power, Appalachian Power  (with Analyst's Data Sheet) On Friday, American Electric Power reported strong second quarter results. We expand a bit upon our Intraday...
Wired For Success by Philip C. Adams, CFA
The Travelers Companies  (with Analyst's Data Sheet) The Travelers Companies saw a dip in its share price earlier this month, after it reported second quarter earnings that fell short of the Wall...
Stormy Spring by Kathleen Shanley, CFA
High Yield
Supervalu  (with Analyst's Data Sheet) Supervalu's (SVU) fiscal 2015 first quarter sales were better than anticipated driven by solid gains for Save-A-Lot and sequential improvement for Retail Food...
Some Progress  by Evan Mann, CFA
MONDAY'S COMMENTS (7/28/2014)
4:06pm Vodafone The revenue woes at Vodafone continued in its fiscal first quarter (ended June 30th), as it reported...
Sales by Dave Novosel, CFA
The revenue woes at Vodafone continued in its fiscal first quarter (ended June 30th), as it reported its eight consecutive quarter of declining revenue. Organic service revenue dropped 4.2%, with decreases of 4.9% in Germany, 16.1% in Italy, and 15.3% in Spain. As usual, the primary culprits were termination rate cuts, tough competition, and relatively weak economies. India and AMAP demonstrated some strength, with revenue up 10.3% and 4.7%, respectively. Vodacom was flat. However, as we have mentioned several times, Europe still represents about two-thirds of total revenue so the weak performance in that region is having a substantial impact on the company's overall revenue. Management confirmed guidance, which calls for weaker margins in fiscal 2015. Margins have fallen considerably over the last five to seven years. In the meantime, hefty capital expenditures associated with Project Spring are likely to constrain free cash flow.
3:44pm Visant Visant has delivered good news to investors recently. First, it announced a j.v. agreement whereby it...
Outlook by Kim Noland
Visant has delivered good news to investors recently. First, it announced a j.v. agreement whereby it would contribute its sampling subsidiary (Arcade Marketing) to a venture with Ileos Holdings, which would contribute Bioplan. Visant will receive cash proceeds of approx. $325 million and presumably will use them to repay debt. Further it is launching a refinance of its senior credit facilities including loans maturing in 2015 and 2016. All of this will improve its liquidity profile that has been challenged with weak operating results as the school memory book and other scholastic products are suffering secular weakness. Although leverage remains high in the mid 6x range, second quarter results were basically flat in terms of revenue and EBITDA which shows the company is still relatively stable. We had changed our rating to underperform not long ago when the FTC blocked the merger of Visant and American Achievement. However, we are reviewing our estimates in light of the better than we expected second quarter and deployment of cash from the j.v. agreement. Stay tuned for more details on the quarter and our updated bond opinion (the bonds ralled about 3 points on the j.v. news but still trade at a y.t.w. of near 10.5%.
11:47am Tyson Foods, Inc. Revenue growth continues to accelerate at Tyson Foods. Fiscal third quarter revenue (ended...
Earnings by Dave Novosel, CFA
Revenue growth continues to accelerate at Tyson Foods. Fiscal third quarter revenue (ended June 28th) soared nearly 11%, with double-digit increases in the Beef, Pork, and Prepared Foods segments. Both the Beef and Pork segments benefited from higher average selling prices stemming from lower supplies. Although operating margins had been trending upward, they declined 120 basis points in the quarter. Margins in the Chicken segment were hurt by higher costs for outside meat purchases and operational disruptions at two of its facilities. Beef margins dropped due mostly to higher fed cattle costs. Tyson posted a loss in the Prepared Foods unit because of higher pork raw material inputs and charges associated with plant closures. We expect the robust top line growth to continue in the fourth quarter, while margins should be roughly flat with last year. In response to the poor performance in the Prepared Foods segment, Tyson intends to close three plants to improve capacity utilization. In addition, it decided to sell its operations in Brazil and Mexico for $575 million since it did not have the necessary scale to gain leading market positions. The company plans to use the proceeds to reduce the debt that will be incurred to fund the Hillshire Brands acquisition. The Hillshire operations will become part of the Prepared Foods unit. Tyson expects synergies of roughly $225 million in fiscal 2015 and more than $500 million by the end of year three. Areas of savings include purchasing, distribution, and operational improvements. That figure does not take into account any benefits for the Pork segment, which could be significant.
11:04am Duke Energy Duke Energy Progress, one of two DUK utility operating subsidiaries in North Carolina, has agreed...
Acquisition by Philip C. Adams, CFA
Duke Energy Progress, one of two DUK utility operating subsidiaries in North Carolina, has agreed to acquire from the North Carolina Easter Municipal Power Agency interests in four nuclear and coal-fired plants (approximately 700 MW) for approximately $1.2 billion. The agreement is subject to a number of state and federal regulatory approvals, with the timing of closing dependent upon those approvals. (The agreement requires closure no later than the end of 2016.) Duke Energy Progress will continue to supply power to MCEMPA members. The acquisition gives Duke Energy Progress lower portfolio fuel costs, and (we speculate) greater control over future investment decisions (such as potential uprates and/or pollution controls), as the utility manages its portfolio to meet future carbon regulations. We expect the NC regulatory approval to include the incremental capacity in rate base, allowing Duke Energy Progress to earn a return on its investment, net of debt service costs.
10:47am Xerox Second quarter revenue declined 2% at Xerox, very similar to the decrease in the first quarter. Document...
Earnings by Dave Novosel, CFA
Second quarter revenue declined 2% at Xerox, very similar to the decrease in the first quarter. Document Technology revenue fell 6%, mainly due to an 11% drop in equipment sales. The steep decline reflected weakness in developing markets, substantial price declines, the timing of new product launches last year, and the migration of customers to the use of print services. Yet margins surged more than 300 basis points because of restructuring benefits, cost productivities, lower pension expense, and lower settlement losses. Conversely, the Services segment posted a revenue gain of 1.2%. However, margins in this unit fell 160 basis points due to issues in the government healthcare business, particularly the Medicaid and Health Insurance Exchange platforms. Impairment charges for the Nevada contact for health exchanges were notable. Management indicated that 70% of the government healthcare business is performing well, with operating margins above 10%. Overall operating margins were up 20 bp. Free cash flow, which is critical to the firm's credit profile, was modest in Q2, but the bulk of it is usually generated in the back half of the year. Our estimate of roughly $1.2 billion for 2014 should cover projected share repurchases of $700 million and acquisitions of around $500 million.
MONDAY'S REPORTS (7/28/2014)
Investment Grade
Royal Caribbean  (with Analyst's Data Sheet) When reporting strong second quarter results last week, Royal Caribbean introduced three-year goals it has dubbed the "Double-Double Program," aiming to...
Double Your Pleasure by Carol Levenson, CFA
High Yield
Freescale Semiconductor  (with Analyst's Data Sheet) Freescale reported a 15% increase in second quarter revenue, the third consecutive quarter in which the top line has expanded at a...
Will The Trend Be Its Friend? by Dave Novosel, CFA
Pinnacle Entertainment, Ameristar Casinos  (with Analyst's Data Sheet) Pinnacle Entertainment reported a lackluster second quarter, and a large shareholder is starting to make noise about...
Moving Parts by Kim Noland
BNP 7/2 
An Independent Viewpoint
Rigorous Analysis
Coverage of Key Securities
Every report is one page, and concludes with an actionable investment recommendation.
Jul 28, 2014 | DBR High Yield Weekly
KS on Crossing a Threshold. Q - Report on M&T Bank featured
Jul 25, 2014 | IFR
CL on Bankers push 'tax-dodge' M&A. Q - "These drug companies pile up huge cash hoards overseas that they cannot access without paying taxes to repatriate the funds."
Jul 21, 2014 | Winston-Salem Journal
CL on Punitive damages in Reynolds 'Engle' case likely to be reduced Q - "we don't believe the long-term credit impact will be material given the likelihood of a dramatic reduction of the award on appeal."
Jul 21, 2014 | DBR High Yield Weekly
VB on Free Range Chicken Q - Report on Pilgrim's Pride featured
Jul 21, 2014 |  SNL Kagan Media & Communications Report
DN on Analysts: 21st Century Fox could bid $100 per share for Time Warner, pile on debt. Q - The acquisition "makes a lot of sense," Novosel said in an interview.
Copyright © 2014. Gimme Credit LLC. All Rights Reserved.
For Public Relations and Press Contact
Susan Assadi sassadi@gimmecredit.com or 800.922.8792