ADT Closes $1B Notes Offering, To Repay Debts With Proceeds

ADT Inc. ADT yesterday announced the closing of an offering of $1000 million worth of first-priority senior secured notes. Notably, the announcement of the offering was made by the company on Aug 6. Initially, it offered $750 worth of senior notes and hiked the offering to $1,000 million on the same day.

It is worth mentioning here that ADT’s share price gained 0.7% yesterday, ending the trading session at $11.58.

Inside the Headlines

As mentioned, the offering of the notes was made to qualified institutional buyers — as defined under the Securities Act — by ADT’s indirect wholly-owned subsidiaries — Prime Security Services Borrower, LLC and Prime Finance Inc.

The first-priority senior secured notes offered are due to expire in 2027 and carry a coupon rate of 3.375%. Notably, the notes offered do not require to be registered under the Securities Act.

ADT will use the gross proceeds of $1,000 million from the notes offering as well as borrowings under revolving credit facilities and cash on hand to redeem $1,000 million of 6.250% senior notes due to mature in 2021, and pay for fees and other expenses related to the transactions.

It is worth mentioning here that ADT’s indirect wholly-owned subsidiary, The ADT Security Corporation, issued redemption notice for the 6.250% senior notes due 2021. These notes will be redeemed on Sep 19, 2020.

We believe that the offerings of senior notes will increase the company’s debts and in turn, might inflate its financial obligations and hurt profitability. However, measures relating to redeeming notes will be a relief.

ADT’s Debt Profile

The company's long-term debt at the end of the second quarter of 2020 stood at $9,685 million. Notably, its proceeds from long-term borrowings totaled $1,640 million in the first six months of 2020, while long-term borrowing repayments amounted to $1,674 million.

In January 2020, ADT completed the offerings of $1,300 million worth of second-priority senior secured notes. The offered notes are due to expire in 2028 and carry a coupon rate of 6.25%.

The company used gross proceeds of $1,300 million along with cash and revolving credit facility for the redemption of $1,246 million of 9.250% second-priority senior secured notes due 2023, and pay for fees and other expenses related to the transactions.

Zacks Rank, Earnings Estimates and Price Performance

With a market capitalization of $8.6 billion, ADT currently carries a Zacks Rank #4 (Sell). In the past 60 days, the Zacks Consensus Estimate for its earnings increased 9.7% to $1.13 per share for 2020, while the same decreased 3.9% to 99 cents for 2021. The consensus estimate for the third quarter remained stable at 16 cents per share in the past 60 days.

ADT Inc. Price and Consensus

ADT Inc. Price and Consensus

ADT Inc. price-consensus-chart | ADT Inc. Quote

The company’s share price has surged 77.6% in the past three months against the industry’s growth of 25.5%.

Stocks to Consider

Three better-ranked stocks in the industry are Fortune Brands Home & Security, Inc. FBHS, Johnson Controls International plc JCI and NortonLifeLock Inc. NLOK. While Fortune Brands currently sports a Zacks Rank #1 (Strong Buy), Johnson Controls and NortonLifeLock carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for these stocks have improved for the current year. Further, positive earnings surprise for the last four quarters, on average, was 19.44% for Fortune Brands, 13.11% for Johnson Controls and 59.96% for NortonLifeLock.

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