8-KFinancial EventsOther EventsExhibits & Filings

STARBUCKS CORP 8-K Report, Financial Obligation (Mar 20, 2017)

Filed March 20, 2017For Securities:SBUX

Summary

Starbucks Corporation (SBUX) announced on March 17, 2017, the completion of a public offering of ¥85,000,000,000 aggregate principal amount of its 0.372% Senior Notes due 2024. This issuance represents a new direct financial obligation for the company and was conducted under an underwriting agreement with Morgan Stanley & Co. International plc and MUFG Securities EMEA plc. The notes bear a low interest rate of 0.372% and mature on March 15, 2024. Starbucks has the option to redeem the notes starting in December 2023. Importantly, the notes include a provision requiring Starbucks to repurchase them at 101% of the principal amount plus accrued interest if a change of control triggering event occurs, which is defined by both a change in control and a downgrade to below investment grade by Moody's and S&P. This offering provides Starbucks with additional funding and details its debt structure and investor protections.

Key Highlights

  • 1Starbucks completed a public offering of ¥85 billion (approximately $750 million USD at the time) of 0.372% Senior Notes due March 15, 2024.
  • 2The notes are senior unsecured obligations, ranking equally with other senior unsecured debt of Starbucks.
  • 3The interest rate on the notes is fixed at a low 0.372% per annum.
  • 4Interest payments are semi-annual, due on March 15 and September 15, with the first payment on September 15, 2017.
  • 5Starbucks can redeem the notes at par value starting December 15, 2023.
  • 6A 'change of control' provision requires Starbucks to offer to repurchase the notes at 101% of their principal amount if a change of control occurs and the notes are subsequently downgraded to below investment grade.
  • 7The debt issuance is governed by an Indenture, with a First Supplemental Indenture dated March 17, 2017.

Frequently Asked Questions

While the 8-K filing doesn't explicitly state the use of proceeds, debt issuances like this are typically used for general corporate purposes, which can include funding operations, capital expenditures, acquisitions, or refinancing existing debt.

This issuance increases Starbucks' total debt. As senior unsecured notes, they rank equally with other senior unsecured debt but are effectively subordinated to any debt held by Starbucks' subsidiaries. Investors should review Starbucks' overall debt-to-equity and interest coverage ratios in subsequent filings to assess the impact on leverage.

Bondholders are protected by a 'change of control triggering event' clause. If Starbucks undergoes a change of control and the notes are subsequently downgraded by credit rating agencies (Moody's and S&P) to below investment grade, Starbucks must offer to repurchase the notes at 101% of their principal amount plus accrued interest, providing an exit mechanism for investors.

The very low interest rate indicates strong creditworthiness of Starbucks at the time of issuance and favorable market conditions for corporate debt. It means the company is borrowing funds very cheaply, which can be beneficial for profitability if the funds are invested wisely.