Global manufacturer and seller of apparel essentials, Hanesbrands Inc. (HBI - Analyst Report) announced that it will repay the remaining 8% floating-rate bond debt worth $250.0 million on Dec 16, 2013, which were due in 2016. The company will also complete its goal to reduce its long-term bond debt to $1 billion.
The company expects to incur a cost of approximately $15 million in the fourth quarter 2013 related to prepayment of debt, which has already been incorporated in the outlook of fiscal 2013. With the completion of payment of 8% senior notes, HBI will retire all its debt barring the $1 billion of 6.375% notes.
The company had started the process of repayment of 8% notes in 2012, when it paid 50% of its Floating Rate Senior Notes due 2016 worth $250 million on Dec 27, 2012. The prepayment of the 50% of the floating notes reduced interest expense substantially for full year 2013.
The debt repayments are in line with management’s expectations to reduce its long-term debt by using its free cash flow. This is encouraging, as this increases the credibility of the company. It also reduces the interest expense and improves liquidity. Hanesbrands intends to use its resources, henceforth to increase its shareholder value and invest in the Innovate-to-Elevate strategy.
The company has strong cash flows and has reduced its debt over time. In its recently concluded third quarter of fiscal 2013, it had cash and cash equivalents of $132.3 million compared with $82.3 million in the previous quarter. Long-term debt was $1.25 billion in the third quarter of 2013 compared with $1.37 billion in the previous quarter.
On Oct 7, 2013, Hanesbrands completed the takeover of the underwear apparel chain, Maidenform Brands Inc., for approximately $583 million. The acquisition was funded with cash and cash equivalents and short-term borrowings through revolving credit facilities. Apart from bringing Maidenform's popular under HBI’s banner, the takeover gave the company a competitive edge over Limited Brands Inc. .
Hanesbrands engages in the marketing of innerwear, outerwear and hosiery apparel and carries a Zacks Rank #1 (Strong Buy). Other companies in the same industry are Quicksilver Inc. and Michael Kors Holding Ltd (KORS - Analyst Report) . While Quicksilver holds a Zacks Rank #1 (Strong Buy), Michael Kors carries a Zacks Rank #2 (Buy).