The world’s largest shirt and neckwear company, PVH Corporation , recently announced that it has completed the offering of $700 million senior unsecured notes. The debt offering has been completed on the scheduled date i.e. December 20, 2012.
The unsecured senior notes carry an annual interest rate of 4.5% and are scheduled to mature on December 15, 2012. A consortium of Barclays, Citigroup, BofA Merrill Lynch, Credit Suisse and RBC Capital Markets were the underwriters of this issuance.
The company intends to use the proceeds from the offering along with cash on hand to pay a portion of the cash consideration related to the acquisition of The Warnaco Group, Inc. . In October this year, PVH entered into an agreement with Warnaco Group to acquire the latter for a consideration of approximately $2.9 billion.
The acquisition is expected to close by August 20, 2013. However, if PVH fails, the company has to redeem the full principal amount along with accrued interest if any on the senior notes, within a period of 10 days.
As of October 28, 2012, the company has a cash and cash equivalents of $276.6 million, long-term debt of $1.648 billion and shareholders’ equity of $3.047 billion. The current debt-to-capitalization ratio comes to 35.1%. However, after the completion of this debt offering, it now approximates to 43.5%.
Moreover, for the third quarter ended October 28, 2012, the company paid interest expense of $28.3 million. The new debt offering will increase the company’s quarterly interest expenses by approximately $7.9 million.
We believe that the debt-to-capitalization ratio, following the debt offering, will gradually decline in the long run owing to the company’s consistent track-record of generating cash flows, which may be utilized to bring down debt.
PVH Corp., which competes with Ralph Lauren Corporation , currently has a Zacks #2 Rank, which translates into a short-term Buy rating. However, given the sluggish domestic economic growth coupled with the crisis in Europe and slowdown in China, we remain slightly cautious on the stock and uphold our long-term ‘Neutral’ recommendation.
PVH Corp., formerly known as Phillips-Van Heusen Corporation, is headquartered in New York. PVH Corp. designs and markets branded dress shirts, neckwear, sportswear, footwear and other related products. The company markets its products at a wholesale level through department store chains and directly to consumers through retail stores. The company's portfolio of brands includes its owned brands and its licensed brands.