Quarter-Billion Line of Credit--What For?

Several readers have asked why Autodesk set up access to a $250 million line of credit this week, when it has over $800 million in the bank. Some incorrectly see this as proof the company is doing more poorly than its success contrawise shows.

No so.

Here's some reasons why Autodesk might want to set up a line of credit:

* They might be counting on using the $800 million to generate income, roughly $80 million a year through investments. Higher yields are possible when you don't dip into the nest egg.

* Remember Autodesk's promise to grow 15% a year? That $80 million or so in investment income adds about 4% to Autodesk's annual growth rate. In contrast, borrowing from the line of credit has no impact on the revenue growth figures.

* Autodesk might be figuring on the coming credit crunch perhaps being problematic for its expansion plans, and so set up this credit deal ahead of time, rather than later when it's more expensive or less accessible. This deal is good until 2012.

* By its nature, a line of credit (a bank loan) is not used unless needed. It's just there for backup; the associated fees are a tax write-off. Autodesk may never use the credit, but has it in case it comes across a worthwhile acquisition.

- - -

Speaking of acquisitions, how about Autodesk acquiring RAND? That way it could own its own dealer network, the way that Bentley Systems does.

Comments

[owenwengerd]

Talk about poetic justice (Re. Autodesk acquiring their gutted dealer network.)

[Gary D'Arcy]

With all due respect I think your reasoning is flawed!

This is an overdraft in our world, not sure what you call it in yours.

If you have $250,000.00 in the bank and then
get and overdraft for $250,000.00 who do you think will be better off.
You or the bank?

So where is the $80 mill on the balance sheet and if it is there then the sales figure are not as great as posted the growth is coming from investments not sales.

Expansion plans! Well if you intend to acquire something you raise
the credit at the time. It is far cheaper that way.
Or issue more shares to cover the cost.
A public company is in many ways like a bank. They have the ability to raise capitol at a cheaper rate than the bank rate by simply issuing a share offer.

A credit crunch only helps those that are liquid.

You suggest they might not use this line of credit!
If they use it or not it still comes with a cost to the bottom line
but to put it in place seems to infer they need to use it!

In my world of economics this does not stack up.

And a far as Rand goes they are a little to late unless they want to
be done over by the vulture capitalist!

Regards Gary