Zimmer To Complete $1 Billion Bond Offering
BY JOHN MCCORMICK, NOVEMBER 15, 2009
On Thursday of last week, Zimmer, one of the largest companies in the industry, announced that it was undertaking a $1 billion bond offering to re-finanance its existing debt, invest in its business and support its stock repurchase program.
This is a clear indication that the capital markets, which are continuing to restore themselves, are maintaining their confidence in the musculoskeletal sector.
The money comes relatively cheaply. With the current low interest rate environment at hand, Zimmer was able to price the debt in two "tranches" (basically, portions) of $500 million each. The first $500 tranche is payable in 10 years at 4.625% and the second is payable in 30 years at 5.85%. Both are priced to yield above comparable US treasuries around 1.2% - 1.3% which is an indication that the markets view Zimmer as a safe bet.
With approximately $600 million of indebtedness to pay off and $440 million of cash already on hand, this would supplement Zimmer's cash balance to well above the $800 million level. Between this and positive cash flows of $100 - $200 million per quarter, Zimmer has plenty of room to maneuver.
Interested readers can find a bond prospectus here on the Securities and Exchange Commission website.
