CME Group (CME) Prices $1.2 Billion Senior Unsecured Notes

CME Group CME recently announced the pricing of $1.2 billion senior notes. The notes will be issued in two tranches, 3.75% $500 million senior unsecured notes due 2028 and 4.15% $700 million senior unsecured notes due 2048.

The company intends to deploy the proceeds from this offering along with cash in hand to finance the cash consideration of NEX Group plc by CME Group and CME London Limited.

CNA Financial’s debt-to-equity ratio at first-quarter end was 10.2%, having improved 70 basis points from 2017-end level. With this new issuance, the ratio is expected to deteriorate 530 basis points. Nonetheless, the leverage ratio will still compare favorably with the industry average of 20.6%.

However, with the new issuance, interest expense will increase. But we still believe in the company’s strong position to clear debts, banking on operational efficiencies, largely driven by organic growth.

Though the interest rate is gradually improving, reflecting the country’s thriving economy, the rate is still low. With the last one-quarter percentage point hike, the interest rate currently stands at 2%. Projections at the June FOMC meeting indicate interest rate to reach 3.4% at 2020 end as GDP grows at 2% and inflation remaining at 2.1% in 2020.

It seems a prudent approach on CME Group’s part to capitalize on the persistently low interest rate environment to procure funds. Also, lower interest rate reducing interest burden on borrowings combined with lower tax incidence should facilitate margin expansion.

Shares of CME Group have rallied 16.5% year to date, outperforming the industry’s growth of 9.9%. Efforts to expand and cross-sell through strategic alliances, acquisitions, new product initiatives and a consolidated global presence should drive growth for the company, pushing up its shares.

 

CME Group has a Zacks Rank #3 (Hold).
    
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