US data centre giant Equinix has priced US$1.1bn of senior notes due 2026 in the latest instalment of its financing package for its acquisition of European rival Telecity Group, a deal which will combine the top two data centre providers in EMEA.
The notes carry a coupon of 5.875%, mature on 15 January 2026 and are redeemable by the company at a premium under certain circumstances, Equinix said.
If the US$3.6bn Telecity takeover, cleared by the European Commission last Friday, is not completed by 29 November 2016, Equinix will redeem the notes.
JP Morgan, BofA Merrill Lynch, Citigroup and RBC Capital Markets are joint bookrunning managers for the offering. TD Securities, ING, HSBC and MUFG are co-managers.
The offering came just a day after Equinix priced some 2.6 million of its common shares at US$288 each, raising US$748.8m in equity. Underwriters have a 30-day option to buy an extra 390,625 shares. The company expects the stock offering to raise about US$829.5m if the greenshoe option is exercised in full.
Joint bookrunning managers for the stock offering were JP Morgan, BofA Merrill Lynch, Citigroup, RBC Capital Markets and Barclays, with ING, MUFG, HSBC, Evercore and BTIG as co-managers.
California-based Equinix, the world’s largest retail colocation provider with 105 data centres across the Americas, EMEA and Asia Pacific, also plans to secure US$700m in senior secured term loans to help fund the deal, bringing the total debt raise to US$1.8bn.
Wells Fargo analyst Jennifer Fritzsche noted that Equinix expects to use the proceeds to fund the US$1.786bn cash consideration, US$180m in fees and refinance US$509m of Telecity debt, leaving US$466m for general corporate purposes.
The company also has US$490m of cash on its balance sheet to help fund the deal, or US$2.9bn in total when added to the capital raise, she said.
Fritzsche estimates Equinix’s leverage will rise to 4.0x pro forma the debt raise, up from 3.5x at the end of Q3, which is at the highest end of its 3.0x-4.0x target leverage.
Equinix expects Telecity shareholders to receive the approved proposed merger documents by the end of November and the deal to close in early H1 2016.
European leadership, and a Japanese move
Fritzsche said she views the acquisition positively “as it bulks Equinix’s position in Europe while also playing defence and preventing a stronger competitor that would have been created by a Telecity/Interxion Holding merger”.
Equinix’s play for London-based Telecity in May scuppered the target’s planned acquisition of Interxion, agreed months earlier.
To secure EC approval for the deal, which combines the top two data centre providers in EMEA, Equinix has agreed to divest five data centres in London, two in Amsterdam and one in Frankfurt to allay the EC’s fears. Together, the data centres generate 4% of Equinix and Telecity’s combined revenue. On closing the company will operate 145 data centres.
Equinix has also agreed to buy Japan’s Bit-isle for US$288m. This November, it completed a cash tender offer for 97% of the target’s shares and it plans to acquire the remainder by the end of the year. This deal will be funded with an existing bridge facility until longer-term financing is arranged.
Fitch has assigned Equinix a first-time issuer default rating of BB with a stable outlook.
The ratings agency said the ratings were based on the company’s “leading market position and world-class reputation in data centre colocation, geographically diverse and network-dense footprint, central position in the emerging hybrid cloud ecosystem, secular demand drivers for data centre outsourcing, recurring revenue and stable customer base”.
However, these were offset by its negative free cash flow, modest expected deleveraging, high operating leverage, debt-funded acquisitions, the competitive nature of the data centre business and low unencumbered asset coverage.
