MasterCard Swaps Credit Facility - Analyst Blog

Yesterday, MasterCard Inc. (MA) entered into a new three-year credit facility worth $2.75 billion, thus replacing a prior $2.0 billion credit facility that was supposed to expire in April 2011. The new credit facility will expire on November 22, 2013. While the majority of credit facility lenders are customers or affiliates of customers of MasterCard International, the terms of the agreement remain undisclosed.

In April 2008, MasterCard's unsecured revolving credit facility had been extended to April 2011. This facility, which had been initiated in April 2006, has now been replaced by the new one, with a revised expiration date of November 2013. The available funding under the previous credit facility was worth $2.5 billion through April 2010 and then decreased to $2.0 billion as of November 22, 2010.

MasterCard was in compliance with the covenants of the previous credit facility and had no borrowings under it in the past one year. Since early this year, however, the company has been mulling to replace this revolving credit facility.

Estimate Trend Revision

Over the last 30 days, 14 of 28 analysts covering the stock have decreased their estimates for the fourth quarter of 2010, while 10 upward revisions were witnessed. Currently, the Zacks Consensus Estimate for the third quarter is operating earnings of $3.06 per share, which would be up by 25.9% from the year-ago quarter.

The higher number of downward estimate revisions for the third quarter indicates a likelihood of negative trend in the performance of the stock in the near term.

With respect to earnings surprises, the stock has been almost steady over the last four quarters, with three positive surprises. The average remained positive at 6.17%. This implies that MasterCard has surpassed the Zacks Consensus Estimate by 6.17% over that period.

The downside potential for the estimate for the fourth quarter, essentially a proxy for future earnings surprises, currently stands at 0.33%.

We believe that with the above-average earnings growth over the past four-five quarters have helped MasterCard improve its balance sheet position. However, it appears that increasing regulatory compliance and litigation costs amid increased regulations in the card payment processing industry and minimal scope of increasing cash flow requires the dependence on additional resources.

Moreover, with the equity market appreciation, MasterCard is also gearing up to tap new business opportunities in its debit portfolio while also seeking to expand through competitive advantages from prime rivals such as Visa Inc. (V). Hence, a revolving unsecured credit facility remains a modest alternative although its adverse impact could be quite intense.

 
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