Zacks_Analysts' Blog : New Credit Facility for Equinix - Analyst Blog

Global data center service provider Equinix Inc. (EQIX) has entered into an agreement with three leading U.S. banks, including Wells Fargo Bank, N.A. and HSBC Bank USA, N.A., for an unsecured revolving credit facility of $1.5 billion. The new debt has a maturity period of 5 years.

Equinix will have to pay an interest rate of LIBOR (London Interbank Offered Rate) plus an applicable margin ranging from 1.25% to 1.75% per year. The company is also subject to a quarterly non-utilization fee ranging from 0.30% to 0.40% per annum.

If required, Equinix will be allowed to amplify the size of the facility by up to $100.0 million, subject to lender approval and prevailing market conditions. The credit facility will allow Equifax to borrow, repay and re-borrow funds until it ceases in 2016.

Equinix officials believe that the company has sufficient liquidity and capital resources to meet its current operating requirements and complete the publicly announced IBX (International Business Exchange) data center expansion plans. But the funds raised from this agreement are intended to finance certain additional expansion or acquisitions.

Management is also hopeful that the solid growth trend of IP, mobile, video, cloud and electronic trading will help them achieve long-term growth targets. They believe that investments are paying off and assert that the company will continue to carefully allocate capital to support the growth.

In the second quarter of fiscal 2011, total debt (loans payable, convertible debt and senior notes) of the company was $1.64 billion, down from $1.80 billion in the previous quarter. In July 2011, the company received net proceeds of approximately $735.6 million from the 7.00% senior note offering. Debt-to-capitalization ratio at the end of the last quarter was 44.3% versus 47.5% in the prior quarter.

Equinix exited the second quarter with $423.1 million in cash and cash equivalents, down from $456.7 million reported in the previous quarter.

The company has delivered strong second quarter results and provided a decent guidance for the fiscal year. We believe that further growth in the client base and strategic acquisitions will enhance the company’s revenue potential and expand its geographic reach.

We are also optimistic about the company’s recurring revenue model and current expansion plans. Despite all the positives, competitive threats from the likes of AT&T Inc. (T) and Verizon Inc. (VZ) keep us cautious. European exposure and industry consolidation are also causes for concern.

Equinix has a Zacks #3 Rank, implying a short-term Hold rating.