To enhance its financial position, Keurig Dr Pepper (KDP - Free Report) recently announced a strategic refinancing program. The program is aimed at extending the company’s debt maturities and enhancing its liquidity position.
Keurig Dr Pepper has initiated a public offering of senior notes, subject to market and other customary conditions. The company expects to utilize net proceeds from the sale of the notes to repay short-term commercial paper notes and current borrowings under its existing revolving credit facilities.
Further, this renowned beverage company is refinancing and expanding its already existing revolving credit facility. Nevertheless, the company’s strategic refinancing plans are expected to keep its debt balance and deleveraging commitments unchanged.
We note that Keurig Dr Pepper is displaying strength on the back of robust cash flow generation, which enables it to significantly clear debts and boost shareholders’ value. In 2019, it generated operating cash flow of $2,474 million, with free cash flows of $2.4 billion. This resulted in an impressive free cash flow conversion rate of 140%.
Driven by strong cash flow, the company paid down structured payables of $531 million and reduced bank debt by $3.1 billion in 2019. Lowered debt and adjusted EBITDA growth resulted in a debt-to-adjusted EBITDA ratio (leverage ratio) of 4.5x at the end of 2019 compared with 5.4x at the end of 2018.
Apart from this, Keurig Dr Pepper’s continued focus on partnerships and acquisitions bode well. Moreover, the company is witnessing strong dollar consumption growth across majority of its portfolio with market share gains in several categories.
We note that shares of this Zacks Rank #3 (Hold) company have lost 4.4% in the past six months compared with the industry’s decline of 12.5%.
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