Intel (Nasdaq:INTC) announced they will issue $6 Billion in bonds to rebuy their own shares. Fitch calls them one of the soundest credits in the technology space. Everyone points to their liquidity. No one can identify where the cash is and what the tax bite will be to repatriate. Of course they can just buy the bonds offshore before maturity and play some shell games.
Here is the Black Swan event in the making. Half the bonds mature in five years. Yes today they are priced very well. Treasuries are historically cheap. But five years from now Obama’s successor will already have one year under his belt. Government spending and QE 111 of IV or whatever will already have been tried. Interest rates will be much much higher. Then its going to bite very hard.
Right Intel is struggling as the PC market transitions to mobile devices. Intel is not leading. Five years from now Intel probably will look very different. bond holders will probably agree to refinance if Intel agrees to voluntarily refinance some of the longer tranches as well. The negotiations will be cold-blooded. You pay or you pay.
In the meantime large shareholder repurchases will financially re-engineer the EPS and hid many failings. Today the shares dividend yield some 4.54% with an 8.73 forward PE. There are reasons why this happened. Intel has a few issues to resolve. The bond deal just closes the financial curtains and puts some asleep for a little longer.
All good things come to an end. IBM and Xerox in their day were gold but fell on hard times. The money flow ratio is 0.52. So lots of people are ready to sell.
George Gutowski writes rom a caveat emptor perspective. Follow him on twitter@financialskepti
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