DJO to Undertake $300 Million Debt Offering
BY JOHN MCCORMICK, OCTOBER 5, 2010
This morning DJO Incorporated, familiar to the industry as DJ Orthopedics, announced it was going to undertake a $300 million senior subordinated note offering.
Throughout the year, corporations have taken advantage of the record-low interest rate environment and have been raising significant amounts of cash through bond issuances. In the third quarter alone, US companies raised over $350 billion from yield hungry capital markets.
Over the last year even the debt-averse orthopedics industry has taken advantage of this trend. Industry giants Medtronic, Stryker and Zimmer each have undertaken billion dollar bond offerings at a minimum. In August, Johnson & Johnson issued $1.1 billion at the lowest interest rates on record for 10-year and 30-year securities according to Bloomberg.
DJO's recent announcement is indicative that mid-size medical device companies are also accessing the red hot corporate debt markets. Orthofix recently undertook a refinancing that reduced their interest from about 7% per year to to around 4.75% saving an estimated $0.20 per share in interest costs. About six weeks ago, Integra raised a $600 million credit facility through a banking syndicate. In cardio, Volcano recently sold $100 million worth of convertible senior notes.
The soul searching question is what are the debt proceeds being used for? DJO was clear that bulk of its offering will be used to refinance higher interest debt at lower cost. The same was true for Orthofix. Such transactions are akin to refinancing a mortgage at lower interest which is great for boosting net income, but have less to do with directing capital into research, development and innovation in the immediate term.
As one might expect, public equity analysts and investors are beginning to call on the larger medical device companies to put their cash stockpiles into productive uses such as acquisitions and R&D.
