Starbucks (NASDAQ: SBUX) today completed a $500 million offering of 2.10% notes due Feb. 4, 2021 at T+75, or 2.112%, sources said. The issue was printed at the firm end of guidance in the T+80 area, and through early whispers in the T+95 area.
Proceeds will be used for general corporate purposes, including the repurchase of common stock under the company’s ongoing share-repurchase program, business expansion, payment of cash dividends, and/or financing possible acquisitions, according to regulatory filings.
As of Dec. 27, 2015, the company had bought back an equivalent of $5.86 billion of common stock, or nearly 252 million shares, under its share-buyback program dating to August 2006. When the program was initiated, the board authorized the repurchase of 25 million shares, and that has since grown to 300 million shares when the authorization was last increased on July 23 of last year, according to S&P Capital IQ.
The company spent roughly $1.5 billion on share buybacks over the 12 months through Dec. 27, 2015, the most in the company’s history after expenditures of $935 million in 2014 and $202 million in 2013, according to S&P Capital IQ.
Even so, the company’s free cash position remained constructive as Starbucks generated roughly $4 billion of operating cash flow last year, or more than the $3.8 billion of combined spending across share buybacks, capital expenditures ($1.34 billion), and common dividends ($986 million).
Earlier today, Standard & Poor’s and Fitch assigned A–/A ratings to the proposed 2021 issue. “Pro forma for the proposed debt issuance, adjusted debt to EBITDA will increase to 1.1x from 1.0x at Dec. 27, 2015,” S&P stated.
According to Fitch—which upgraded Starbucks’ rating to A, from A– in November—for the year ended Sept. 27, 2015, lease-adjusted leverage was 2.0x, down from 2.2x at the end of fiscal 2013. “Cash flow priorities are to invest in its business and return cash to shareholders. The company has maintained a dividend pay out to earnings in line with its 35–45% target and has been prudent with share repurchases, funding buybacks mainly with internally generated cash,” Fitch said.
In September 2015, Moody’s upgraded Starbucks’ senior unsecured rating to A2, from A3. “”The upgrade reflects Moody’s view that Starbucks measured growth strategy, product pipeline, digital initiatives and balanced financial policy will continue to drive operating earnings, credit metrics, liquidity and scale that is more reflective of an A2 rating,” Moody’s said at the time.
The ratings outlook is now stable on all three sides.
On Thursday, Starbucks announced quarterly earnings that beat analysts’ expectations on profits; however, its stock took a hit on that day, when its forecast for the current quarter lagged expectations.
The Seattle-based specialty coffee company last tapped the market in June 2015, when it completed an $850 million, two-part offering, including 2.7% notes due 2022 at T+78, or 2.703%, and 4.3% notes due 2045 at T+138, or 4.32%.
An infrequent issuer in the market, Starbucks in December 2013 completed a $750 million, two-part offering, including 0.875% three-year notes due 2016 at T+38, and 2% five-year notes due 2018 at T+63, or 2.04%. For reference, the 2018 issue changed hands a week ago at a G-spread equivalent of 36 bps, according to MarketAxess. Terms:
|Issue||SEC-registered senior notes|
|Maturity||Feb. 4, 2021|
|Call||Make-whole T+15 until notes are callable at par from one month prior to maturity|
|Trade||Feb. 1, 2016|
|Settle||Feb. 4, 2016|
|Px Talk||guidance T+80 area (+/– 5 bps); IPT T+95 area|
|Notes||Proceeds will be used for general corporate purposes|