Sensata cuts leverage to 2.8x, gets attractive coupon on bonds sale

By Devika Patel

Knoxville, Tenn., Oct. 30 – Sensata Technologies BV has strengthened its balance sheet and lowered its net leverage ratio to 2.8x, which is at the low end of the company’s historic range, from 4.6x at the end of 2015.

In the last quarter, the company also secured an attractive coupon on its $450 million offering of 10-year notes.

“We’ve done a lot of work to strengthen our balance sheet over the past few years and our net leverage ratio of 2.8x is at the low end of our historic range,” chief executive officer Martha Sullivan said on the company’s third quarter ended Sept. 30 earnings conference call on Wednesday.

“Our business model generates a lot of free cash flow, which gives us a much better cash flow profile than most of our peers serving the auto and industrial markets, so we are less susceptible to major swings in demand.

“I’d also point out that our stronger balance sheet has occurred even as we have deployed more than $900 million towards M&A and share repurchases over the past 18 months.

“In the face of weakening end markets and other external pressures, our historically low net leverage ratio and higher pace of returning cash to shareholders speaks to the strength of our organization,” she said.

“Since the end of 2015, we have lowered our net debt by $744 million and reduced our leverage ratio from 4.6x to 2.8x,” executive vice president and chief financial officer Paul Vasington said on the call.

The company also refinanced its term loan and garnered an attractive 4 3/8% coupon on its $450 million sale of senior notes due Feb. 15, 2030, leaving 86% of its total debt fixed-rate.

“During the quarter, we enhanced our capital structure by issuing a new 10-year $450 million bond and refinancing our term loan,” Vasington said.

“We achieved several positive outcomes from these financing actions.

“First, we took advantage of favorable markets and secured a 4.375% coupon on our bond financing.

“This historically low 10-year rate in the high-yield market reflects the attractiveness of our business, as well as the confidence that bondholders have in our long-term operating performance.

“In addition, we increased the percentage of our fixed-rate debt from 72% to 86% of our total debt to further reduce interest rate volatility.

“Also, with this bond financing, we extended the duration of our debt portfolio.

“Finally, we reduced the total amount of our term loan and extended the maturity to 2026.

“As a result, we have no debt maturities before 2023,” he said.

Cash and cash equivalents were $721,386,000 as of Sept. 30, 2019, compared to $729,833,000 as of Dec. 31, 2018.

Net long-term debt was $3,219,412,000 as of Sept. 30, 2019, relatively flat compared to $3,219,762,000 as of Dec. 31, 2018.

On Sept. 10, Sensata Technologies Holding plc priced $450 million of senior notes due Feb. 15, 2030 (Ba3/BB+) at par to yield 4 3/8% in a Rule 144A and Regulation S for life offering.

Initial price talk was in the 4½% area.

Goldman Sachs & Co. LLC was the left bookrunner. Joint bookrunners were Barclays, BofA Securities, Inc., Mizuho Securities USA LLC, Morgan Stanley & Co. LLC and RBC Capital Markets LLC.

The notes are guaranteed by indirect parent company Sensata Technologies BV and each of the parent’s wholly owned subsidiaries that are expected to be a guarantor under its senior credit facilities and outstanding series of existing notes.

Proceeds were earmarked to repay a portion of the company’s outstanding term loan.

On Sept. 17, Sensata Technologies Inc. revised the issue price on its amended and extended seven-year covenant-lite senior secured term loan B to par from talk in the range of 99.5 to 99.75.

Pricing on the term loan remained at Libor plus 175 basis points with a 0% Libor floor, and the debt still has 101 soft call protection for six months.

At pricing, the term loan B was sized at roughly $913 million but was expected to be paid down to $472 million with proceeds from the $450 million senior notes offering.

Sensata is a producer of sensors and controls for manufacturers in the automotive, appliance, aircraft, industrial and HVAC markets.

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