Broadcom (AVGO) this morning announced its two subsidiaries, Broadcom Corporation and Broadcom Cayman Finance Limited, were to issue senior notes. The notes are to be guaranteed on a senior unsecured basis by AVGO and certain subsidiaries. The proceeds of the deal will be used to pay down the current outstanding debt of Broadcom's credit facility.
The news release noted the issuance will take place through a private placement to qualified institutional buyers (QIB) under Rule 144A and Rule Reg S for investors outside of the US. The press release did not state the size or the terms of the deal.
Perhaps this is a move to get a lower interest rate on some of the current notes outstanding. By issuing new debt at a lower cost of capital , and using those proceeds to pay down existing debt.
According to, AVGO's latest 10-k, the company has $13.5 billion in debt under the terms of its 2016 credit agreement. About $7.0 billion is in Term Loan A due to mature in February 2021. While $6.5 billion in Term Loan B due to mature in February 2023. The Term Loans currently have an interest rate of 2.28% on Term Loan A and Term Loan B has a rate of 3.53%.
The rates of Term A Loan are variable based on the applicable credit rating. The rate of Term B Loan Eurocurrency Loans at 3.0% and a Base Rate Loans at 2.0%. These loans are both floating rate loans.
This recent news today, seems like the company is looking to raise money through a debt offering to pay down these loans. Perhaps in an attempt to get rid of these floating rate loans for something fix. The debt issuance could be something that is critical, should interest rates continue to rise. Depending on the amount of the raise and terms of the debt issuance it should help the company.