CME CME Group Inc

On Tuesday, NASDAQ OMX Group Inc. (NDAQ) announced a cash tender offer for its outstanding 2.5% Convertible Senior Notes due 2013. The company will purchase the notes at a premium of $25 for every note of face value $1000. It will also pay the accrued and unpaid interest up to the date of purchase.

The total principal value of the outstanding notes is $428 million. NASDAQ will fund the purchase with a combination of cash earned from operations and borrowings made under a new credit facility, which was announced on the same day. The company will cancel all the notes purchased under the offer.

The offer is open till October 18, 2011 and will expire at midnight as per New York City time on the same day. Payment for validly tendered notes is expected to be made by NASDAQ on October 19, 2011 and Bank of America Corporation (BAC) and UBS AG (UBS) will manage the offer. NASDAQ filed the Offer to Purchase and the Letter of Transmittal with the Securities and Exchange Commission on September 20, 2011.

The company also entered a new $1.2 billion senior unsecured credit facility on the same day, which will mature on September 19, 2016. The new facility will not increase NASDAQ’s debt. The five-year credit facility consists of a $450 million senior unsecured term loan and a $750 million revolving credit commitment.

Revolving credit commitment means that the lender will be obliged to participate in swing loans and Letters of Credit issued for the account of NASDAQ. The commitment is expected to be funded after the expiry of the cash purchase offer.

Apart from financing the note purchase, the new credit facility will also be used to refinance the existing credit facility of NASDAQ, which was due in 2013 but has been terminated prematurely. The interest rate on the new facility is variable and consists of the London Interbank Offered Rate (LIBOR) and a variable margin based on NASDAQ’s debt rating. The interest rate is LIBOR+ 1.375% at present.

The two transactions will not only reduce NASDAQ’s borrowing cost but also increase its borrowing capacity. Additionally, reduced borrowing cost will lead to higher earnings per share. Moreover, the term to maturity of the company’s debt will be increased.

The refinancing may be linked to the new capital plan that NASDAQ announced last week. The new plan will be implemented from the fourth quarter of 2011.

The company intends to buy back shares under the new plan to take advantage of the declining share price. NASDAQ has been witnessing sharp market price declines on account of the ongoing economic volatility and increased competition from rivals like NYSE Euronext Inc.(NYX) and CME Group Inc. (CME).

NASDAQ currently carries a Zacks #3 Rank, implying a short-term Hold rating.

On Wednesday, the shares of the company closed at $24.18, down 2.11%, on the New York Stock Exchange.

 
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