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Cisco taps credit to complete bond offer
By Joseph Galante |
February 11, 2009, Wednesday
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Print Edition
Print Edition
CISCO Systems Inc, taking advantage of loosening credit markets, completed the second bond offering in its 25-year history as it looks for ways to reduce expenses amid a slump in demand for networking equipment.
The US$4-billion bond sale will be used to repay US$500 million of floating-rate notes maturing this month, the San Jose, California-based company said on Monday. Cisco, the world's largest maker of networking equipment, said that the proceeds will also go toward general corporate purposes.
Chief Executive Officer John Chambers is taking advantage of a more plentiful supply of credit to lower borrowing costs and boost Cisco's cash. The company is working to eliminate at least US$1 billion in expenses by the end of July. Sales may drop as much as 20 percent this quarter, and analysts don't expect a rebound until 2010.
"They're making considerable cost cuts in light of reduced revenue," said Erik Suppiger, an analyst at Signal Hill Capital Group LLC in San Francisco. "They also see an opportunity to refinance at a better interest rate. Debt is going to be less expensive than equity, certainly at these prices."
At Cisco, the added cash may help fund more acquisitions. The company, which had US$29.5 billion in cash at the end of the last quarter, bought at least seven companies last year and currently has a "good pipeline" of potential acquisitions, Chambers said last week on a conference call, according to Bloomberg News.
The company said in a statement on Monday that general corporate purposes may include stock buybacks, debt repayment, acquisitions, investments, capital expenditure and advances to subsidiaries.
Cisco's main business is routers and switches, which direct and control the flow of data over networks.
The US$4-billion bond sale will be used to repay US$500 million of floating-rate notes maturing this month, the San Jose, California-based company said on Monday. Cisco, the world's largest maker of networking equipment, said that the proceeds will also go toward general corporate purposes.
Chief Executive Officer John Chambers is taking advantage of a more plentiful supply of credit to lower borrowing costs and boost Cisco's cash. The company is working to eliminate at least US$1 billion in expenses by the end of July. Sales may drop as much as 20 percent this quarter, and analysts don't expect a rebound until 2010.
"They're making considerable cost cuts in light of reduced revenue," said Erik Suppiger, an analyst at Signal Hill Capital Group LLC in San Francisco. "They also see an opportunity to refinance at a better interest rate. Debt is going to be less expensive than equity, certainly at these prices."
At Cisco, the added cash may help fund more acquisitions. The company, which had US$29.5 billion in cash at the end of the last quarter, bought at least seven companies last year and currently has a "good pipeline" of potential acquisitions, Chambers said last week on a conference call, according to Bloomberg News.
The company said in a statement on Monday that general corporate purposes may include stock buybacks, debt repayment, acquisitions, investments, capital expenditure and advances to subsidiaries.
Cisco's main business is routers and switches, which direct and control the flow of data over networks.
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