Starbucks Seeks More Debt Financing, In New Debt Issuance Worth $750 Million

  @natrudy on September 03 2013 11:12 PM
starbucks
The logo of a Starbucks coffee shop is seen in New York June 25, 2013. Reuters

Coffee shop giant Starbucks Corporation (NASDAQ:SBUX) is looking to boost itself with some extra debt-based financing, placing a general request to borrow from investors, according to a regulatory filing it submitted on Tuesday.

In the mostly pro forma document, the company doesn’t officially say how much money it could raise from its expected sale of debt securities, in the form of long-term senior notes.

Nor does Starbucks cite specifically what it will do with the money raised, aside from commenting broadly that it will pay for “general corporate purposes.” That can include corporate expansion, dividend payments, share repurchases or acquisitions.

Morningstar Inc. (NASDAQ:MORN) credit analyst Joscelyn Mackay estimated that Starbucks is seeking to raise about $750 million in 10-year debt securities.

In a research note from Tuesday, she wrote that the fresh $750 million in corporate debt won’t hurt Starbucks’ strong credit profile, and that the company will likely spend it on share repurchases.

“The reason for the issuance is to add leverage to the currently conservative capital structure, and will likely be used for share repurchases,” she wrote. “We estimate the firm could issue as much as $1 billion in debt without materially affecting its credit profile.”

Speculation that the company could be seeking cash for an acquisition is also unfounded, wrote Mackay.

“Management was quite clear that Starbucks is not looking to make an acquisition at present as it is digesting the most recent three acquisitions.”

The coffee company has acquired tea company Teavana, San Francisco bakery La Boulange and juice maker Evolution Fresh, all within the past two years.

The company still has a robust free cash flow, said Mackay.

Starbucks last issued similar amounts of debt in 2007 and 2011, according to Securities and Exchange Commission filings. That 2007 debt is due in 2017, representing $550 million of debt in 6.25 percent interest rate notes.

The company has almost $1 billion in borrowing capacity, according to a May 2013 Morningstar credit report on Starbucks.  

The company didn’t return a request for comment. In its latest earnings call, company chief financial officer Troy Alstead pegged the anticipated debt issue at $750 million, for “financial flexibility for general corporate purposes.”

“We will continue to evaluate our capital needs and may increase our debt, if we needed a strong liquidity and to see the right returns from our leverage,” said Alstead in the late July call.  

Moody’s Investor Services, of Moody’s Corporation (NYSE:MCO) upgraded Starbucks’ corporate credit profile in April.

Moody’s placed Starbucks on review for a credit upgrade after the announcement on Tuesday, noting the plan boosts the company’s liquidity, and could help with its potential $2.9 billion legal bill over a dispute with Kraft Foods Group Inc. (NASDAQ:KRFT).

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