Otis Worldwide Corp (NYSE:OTIS), a leading manufacturer in the electrical equipment industry, announced today the issuance of $600 million in 5.125% notes due November 19, 2031. This offering, part of a dual-tranche debt issuance that also includes the sale of €850 million in notes by its subsidiary Highland Holdings, is aimed at refinancing existing debt and supporting general corporate purposes.
The notes were offered under the company's shelf registration statement previously filed on March 24, 2023. Otis entered into an underwriting agreement with prominent financial institutions such as HSBC Securities (USA) Inc., J.P. Morgan Securities LLC, and others. The net proceeds from the sale of the notes, after deducting the underwriting discount and offering expenses, are estimated to be approximately $594.5 million.
Interest on the newly issued notes will be payable semi-annually, with the first payment scheduled for May 19, 2025. The company has the option to redeem the notes before maturity at a "make-whole" premium or at par after September 19, 2031.
The indenture governing the notes includes customary covenants for such financings, limiting the company's ability to incur additional liens, make certain fundamental changes, and enter into sale and leaseback transactions. It also outlines events of default typical for this type of financing.
In a parallel move, Highland Holdings S.à r.l., an indirect wholly-owned subsidiary of Otis, issued €850 million in 2.875% notes due November 19, 2027. These notes are guaranteed by Otis Worldwide Corp and were offered under the same shelf registration statement. Highland Holdings expects to use the proceeds for the repayment of the company's 2.056% notes due April 5, 2025, and to address certain commercial paper borrowings.
The Highland Notes, bearing interest at a rate of 2.875% per annum, will also be redeemable before their maturity date under similar terms as the Otis notes. The company and Highland have outlined their right and the procedures for repurchasing the notes upon a Change of Control Triggering Event.
In other recent news, Otis Worldwide Corporation has successfully priced a $600 million offering of 5.125% Notes due 2031 and a €850 million offering of 2.875% Notes due 2027, through its subsidiary, Highland Holdings S.à r.l. The proceeds will be used for debt repayment and other corporate needs. In addition to these financial maneuvers, Otis reported Q3 2024 financial results, indicating a mix of growth and challenges. The company saw net sales reaching $3.5 billion, driven by a notable rise in the Service segment, while experiencing a decline in New Equipment orders, particularly in China.
Despite this, Otis projects growth in overall sales and an increase in adjusted EPS for the upcoming year. The company has also announced a dividend of $0.39 per share. These recent developments highlight Otis's strategic financial management and its ability to navigate through economic challenges.
InvestingPro Insights
Otis Worldwide Corp's recent debt issuance aligns with its financial strategy, as reflected in the latest InvestingPro data. The company's market capitalization stands at $40.07 billion, indicating its significant presence in the machinery industry. Otis operates with a moderate level of debt, which is consistent with its recent move to refinance existing obligations and support general corporate purposes.
The company's financial health appears robust, with a revenue of $14.21 billion in the last twelve months as of Q3 2023, and an operating income margin of 16.37%. This solid performance supports Otis's ability to take on additional debt while maintaining its financial stability.
InvestingPro Tips highlight that Otis has raised its dividend for 5 consecutive years, demonstrating a commitment to shareholder returns. This is further supported by a current dividend yield of 1.55% and a notable dividend growth of 14.71% over the last twelve months. These factors may provide investors with confidence in the company's financial management and long-term strategy.
It's worth noting that Otis's P/E ratio of 24.84 suggests it's trading at a premium relative to its near-term earnings growth. However, this should be considered alongside the company's strong return over the last five years, as mentioned in another InvestingPro Tip.
For investors seeking a more comprehensive analysis, InvestingPro offers 10 additional tips for Otis Worldwide Corp, providing a deeper understanding of the company's financial position and market performance.
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