Summary
L3Harris Technologies, Inc. (LHX) announced on November 27, 2019, the successful closing of its offering and sale of $400 million in aggregate principal amount of 2.900% Notes due 2029. This issuance was conducted under the company's existing shelf registration statement. The primary purpose of this debt issuance is to refinance existing debt, specifically to fund the full redemption of its $400 million 2.700% notes due April 2020, along with associated interest, fees, and expenses. This move indicates proactive debt management and a strategy to optimize the company's capital structure by extending its debt maturity profile.
Key Highlights
- 1Closed issuance of $400 million in 2.900% Notes due 2029.
- 2Proceeds will be used for general corporate purposes.
- 3Key use of proceeds is to redeem $400 million of 2.700% notes due April 2020.
- 4The debt offering was registered under an existing Form S-3 shelf registration statement.
- 5The issuance is part of L3Harris's strategy to manage its debt maturity and capital structure.
- 6Underwriting for the offering was handled by major financial institutions including BofA Securities, Citigroup, and Wells Fargo Securities.
Frequently Asked Questions
The primary purpose of issuing the new 2.900% Notes due 2029 was to refinance existing debt. Specifically, the proceeds are intended to fund the full redemption of L3Harris's $400 million 2.700% notes that were due in April 2020.
This issuance effectively replaces $400 million of maturing debt with new debt of the same principal amount but with a longer maturity (2029 vs. 2020) and a slightly higher interest rate (2.900% vs. 2.700%). While the principal amount remains the same, extending the maturity could provide greater financial flexibility and potentially reduce short-term refinancing risk. The slight increase in interest rate will lead to a modest increase in annual interest expense.
Using a shelf registration statement (Form S-3) allows L3Harris to efficiently register securities it plans to issue in the future. This means the company had already gone through a significant part of the SEC approval process, enabling a quicker and more streamlined issuance of these notes when market conditions were favorable.
The immediate impact on cash flow involves the proceeds from the new issuance and the outflow for redeeming the old notes and associated costs. In the longer term, the company will have an annual interest payment obligation of approximately $11.6 million ($400 million * 2.900%) for the new notes, compared to approximately $10.8 million ($400 million * 2.700%) for the old notes. This represents an increase in annual interest expense.