Friday, August 16, 2013

Watsco Amends Credit Facility - Analyst Blog

Watsco, Inc. (WSO) has announced the refinancing of its existing unsecured revolving credit agreement worth $500 million. The amendment includes improvement of covenant flexibility and extension of maturity date.

The amended credit facility will now mature on Jul 1, 2018, instead of Apr 27, 2017. In addition, borrowings under the credit agreement bear interest at different rates depending on the kind of advances or loans. However, this amendment has reduced the spread on its available borrowing rates that are primarily based on LIBOR. Other major terms under the facility remain unchanged.

JPMorgan Chase Bank (JPM) served as the administrative agent of the offering. The credit facility was also co-led by Bank of America (BAC) and Wells Fargo Bank – a subsidiary of Wells Fargo & Company (WFC), as syndication agents. U.S. Bank National Association acted as documentation agent.

The amendment will provide low cost debt capital which is in line with Watsco's growth strategy. Watsco will use proceeds under the facility for working capital, acquisitions, dividends and other general corporate purposes.

Miami, Fl.-based Watsco, together with its subsidiaries, engages in the distribution of air conditioning, heating, and refrigeration equipment in the U.S., Canada, Puerto Rico and Mexico. It distributes residential central air conditioners, gas, electric, and oil furnaces, commercial air conditioning and heating equipment.

Watsco continues to increase its presence in the international markets, which currently contribute 16% to its total sales. On the domestic front, the company continues to witness growth in the residential product segment and the momentum is expected to continue in 2013 as well, aided by the recovery in the housing market.

Watsco has immense potential in the replacement market of air conditioners and heating systems in the U.S., as nearly 89 million of these are more than 10 years old. Furthermore, Watsco's joint venture with Carrier Corpora! tion remains successful. The option to purchase an additional 10% interest in the venture in the Sun Belt region might also be accretive to the company's earnings.

Watsco currently retains a Zacks Rank #2 (Buy).


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