NEXTDC continues to get media coverage as a potential takeover target for large global players
The reasoning for this includes:
- The time taken to build scale
- The significant upfront costs associated with building data centres
- Site availability is limited
- Currency movements (AUD/USD has declined 18% in the past 12 months)
- Larger players would arguably have material cost of capital advantages
This last point is relevant to NXT’s two outstanding bond issues. An acquisition by a stronger entity with potential access to much cheaper debt would increase the likelihood of a buyback or call. Given the high capital intensity of NXT, the cost of capital takes on greater significance in assessing the value add of servicing existing debt.
It was speculated in the AFR that global data centre provider Equinix may be interested in NXT. Equinix has a stronger credit profile. Further its senior secured loans, including a USD1.5bn revolver are priced at around 4.6%.
NXT is currently paying an effective 8.5% weighted interest rate on its unsecured notes, a 390bps differential.
NXT’s notes are currently trading at a premium to the 101%. Change of Control with Notes I at $104.1 and Notes II at $102.6. However they can be redeemed at first call in December 2016 at 102.5% and 101.5% respectively. This equates to a yield to call of 4.24% for Note I and 4.42% for Notes II.
Director - Credit Research, Industrials and Corporates. Will has over 15 years’ experience in credit and fixed income markets, including 6 in London, working at fund managers, banks and government treasury.