Lincoln Electric Completes $550 Million Private Placement of Senior Unsecured Notes and Related Refinancing Transactions

Rhea-AI Summary

Lincoln Electric Holdings (Nasdaq: LECO) has completed a $550 million private placement of senior unsecured notes. These notes will repay a $400 million term loan and support general corporate purposes. The notes are divided into three series: Series A ($75 million, 5.55% interest, maturing August 2029), Series B ($75 million, 5.62% interest, maturing August 2031), and Series C ($400 million, 5.74% interest, maturing June 2034). Lincoln Electric's total debt is now $1.25 billion, with a weighted average interest rate of 4.08% and an average tenor of 9.5 years. The company also secured a new $1 billion revolving credit facility, replacing a $500 million facility. This new credit line aims to enhance liquidity in line with increased EBITDA performance.

Positive

• Completed $550 million private placement of senior unsecured notes.
• Notes will help repay a $400 million term loan.
• Secured a new $1 billion revolving credit facility, enhancing liquidity.
• Notes have a weighted average interest rate of 4.08% and an average tenor of 9.5 years.
• No outstanding borrowings under the new revolving credit facility at closing.

Negative

• The issuance of $550 million in notes increases total debt to $1.25 billion.
• Interest expenses are expected to remain steady, not decreasing, in 2024.

Insights

Financial Analyst

Lincoln Electric's recent issuance of senior unsecured private placement notes totaling $550 million is a strategic move aimed at optimizing its debt structure and enhancing liquidity. The company plans to use part of these proceeds to repay a $400 million term loan, which will likely help in reducing interest expenses over time. The newly issued notes have varying interest rates, with the highest being 5.74% for the Series C notes maturing in June 2034. This refinancing is expected to balance Lincoln Electric's debt profile, ensuring better financial stability and giving it room to maneuver for future investments.

The new revolving credit facility, which provides up to $1 billion of borrowing capacity, significantly enhances the company's liquidity. The interest rate on this facility is pegged to SOFR (Secured Overnight Financing Rate), which is a more stable and transparent benchmark compared to LIBOR. This arrangement should provide more predictable interest expenses in a fluctuating interest rate environment.

The financial metrics like a net leverage ratio cap of 3.5x EBITDA and a minimum interest coverage ratio of 2.5x EBITDA are reasonable and indicate a disciplined approach towards managing leverage and ensuring sufficient cash flows to cover interest obligations. This strategic financial maneuver aligns well with Lincoln Electric's Higher Standard 2025 Strategy, providing a robust platform for future growth and operational expansion.

Credit Market Analyst

The issuance of these notes and the new revolving credit facility will likely positively impact Lincoln Electric's credit profile. With these notes being senior unsecured, they rank above other indebtedness, providing an additional safety buffer for investors. The weighted average interest rate of 4.08% for total outstanding debt, after considering the new notes and existing swaps, suggests a cost-effective refinancing solution that balances risk and return.

The termination of the previous $500 million revolving credit facility and establishment of a new $1 billion facility indicates a proactive approach in managing liquidity risk. This should improve the company's credit ratings or at least keep them stable, as it shows a higher liquidity buffer and prudent financial planning. The covenants attached to the new facility, specifically the interest rate tied to SOFR plus a varying spread contingent on the leverage ratio, ensure that Lincoln Electric maintains a healthy financial discipline.

Overall, these steps should enhance the company’s borrowing capabilities and instill confidence among credit investors, potentially leading to better terms in future debt issuance.

CLEVELAND--(BUSINESS WIRE)-- Lincoln Electric Holdings, Inc. (the “Company”) (Nasdaq: LECO) today announced that it has issued a new series of senior unsecured private placement notes (collectively the “Notes”) in the aggregate principal amount of $550 million. The proceeds of the Notes will be used to repay the Company’s $400 million term loan and for general corporate purposes. In addition, the Company entered into a new revolving credit facility to provide up to $1 billion of borrowing capacity, in alignment with the capital allocation priorities of the Company’s Higher Standard 2025 Strategy.

The Company and certain of its subsidiaries issued senior unsecured private placement notes in the aggregate principal amount of $550 million consisting of:

Series A: $75 million at 5.55% per annum to mature August 2029
Series B: $75 million at 5.62% per annum to mature August 2031
Series C: $400 million at 5.74% per annum to mature June 2034

The Notes may be prepaid at any time and interest will be paid semi-annually.

Following the completion of these transactions, the Company will have $1.25 billion in total debt outstanding under the new and existing senior unsecured private placement notes, with a weighted average interest rate, including the impact of interest rate swaps, of 4.08% and an average tenor of 9.5 years. The Company expects its full year 2024 ‘interest expense, net’ position to be relatively steady versus the prior year.

In addition, the Company has terminated its 2021 $500 million revolving credit facility and has entered into a new five-year credit agreement for a $1 billion revolving credit facility, which increases the Company’s liquidity to align with higher EBITDA performance. The new revolving credit facility will initially bear interest on outstanding borrowings at a per annum rate equal to SOFR plus 1.10% and could fluctuate based on the Company’s total net leverage ratio at a spread ranging from SOFR plus 1.10% to SOFR plus 1.60%. The financial covenants consist of a maximum net leverage ratio of 3.5x EBITDA and a minimum interest coverage ratio of 2.5x EBITDA. The Company had no outstanding borrowings under the new revolving credit facility at closing.

The Notes were not registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws, and may not be offered or sold in the United States or to U.S. persons absent registration or an applicable exemption from the registration requirements. The Notes were offered only to qualified institutional buyers in accordance with Rule 144A under the Securities Act.

Forward-Looking Statements

The Company’s expectations and beliefs concerning the future contained in this news release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect management’s current expectations and involve a number of risks and uncertainties. Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “forecast,” “guidance” or words of similar meaning. Actual results may differ materially from such statements due to a variety of factors that could adversely affect the Company’s operating results. The factors include, but are not limited to: general economic, financial and market conditions; interest rates; disruptions, uncertainty or volatility in the credit markets that may limit our access to capital; and our ability to maintain existing debt levels or repay debt. For additional discussion, see “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

About Lincoln Electric

Lincoln Electric is the world leader in the engineering, design, and manufacturing of advanced arc welding solutions, automated joining, assembly and cutting systems, plasma and oxy-fuel cutting equipment, and has a leading global position in brazing and soldering alloys. Lincoln is recognized as the Welding Expert™ for its leading materials science, software development, automation engineering, and application expertise, which advance customers’ fabrication capabilities to help them build a better world. Headquartered in Cleveland, Ohio, Lincoln has 71 manufacturing locations in 21 countries and a worldwide network of distributors and sales offices serving customers in over 160 countries. For more information about Lincoln Electric and its products and services, visit the Company’s website at https://www.lincolnelectric.com.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240624072399/en/

Amanda Butler

Vice President, Investor Relations & Communications

Tel: 216.383.2534

Email: Amanda_Butler@lincolnelectric.com

Source: Lincoln Electric Holdings, Inc.

FAQ

What is the amount of the new private placement notes issued by Lincoln Electric (LECO)?

Lincoln Electric issued $550 million in new senior unsecured private placement notes.

What will Lincoln Electric (LECO) use the proceeds from the $550 million notes for?

The proceeds will repay a $400 million term loan and be used for general corporate purposes.

What are the interest rates and maturities for the new Lincoln Electric (LECO) notes?

The notes are issued in three series: Series A at 5.55% maturing August 2029, Series B at 5.62% maturing August 2031, and Series C at 5.74% maturing June 2034.

What is the total debt of Lincoln Electric (LECO) after the new note issuance?

Following the issuance, Lincoln Electric’s total debt is $1.25 billion.

What is the weighted average interest rate of the new and existing notes for Lincoln Electric (LECO)?

The weighted average interest rate is 4.08%.

What is the new revolving credit facility arranged by Lincoln Electric (LECO)?

Lincoln Electric arranged a new $1 billion revolving credit facility to replace its previous $500 million facility.

What are the financial covenants for Lincoln Electric's (LECO) new revolving credit facility?

The financial covenants include a maximum net leverage ratio of 3.5x EBITDA and a minimum interest coverage ratio of 2.5x EBITDA.