Covenants on Micron (MU) Inotera Deal Seem a 'Tad Tight', Susquehanna Says, But 'China Inc.' Could Still Come Through
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Susquehanna analyst Mehdi Hosseini weighed in on Micron Technology (NASDAQ: MU) after the company disclosed a ~$2.5B syndicated loan commitment with Bank of Taiwan and related entities, used for funding the Inotera acquisition.
They believe the rate is relatively in-line with industry norms (TAIBOR +2.05%), though anecdotally, and believe financial covenants are a tad tight. Specifically, they note the Debt/EBITDA covenant of 3.5x for 2017, which compares to MU's current Debt/EBITDA of ~3.0x -- though we concede that when factoring in our FY17 EBITDA in conjunction with Inotera EBITDA, we believe MU Debt/EBITDA could settle in closer to ~2.5x exiting FY17.
Importantly though, they continue to believe MU could still remain in discussions with China Inc. (as well as Intel) in formulating a three-way collaboration for China-based memory production (9/9, 7/27 and 7/12) as MU still has until 12/6 to finalize terms (which includes a grace period after the 11/30 expiration of the Inotera deal). In fact, as they've outlined in the past (6/23 and 5/12), they believe a "prepayment" of 3D NAND via the MU/Intel JV can provide MU with necessary upfront funding to consummate the Inotera deal without putting a dent in the balance sheet.
The firm maintained a Positive rating and price target of $21 on MU.
Shares of Micron Technology closed at $17.50 yesterday.
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Related EntitiesSusquehanna International Group of Companies, Definitive Agreement
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