Avon Closes Debt Refinancing Activities - Analyst Blog
16 March 2013 - 1:10AM
Zacks
Distressed global beauty company,
Avon Products Inc. (AVP) has moved ahead with its
previously planned target of improving the health of its balance
sheet by successfully culminating its refinance activities.
In accordance with its refinancing
activities, Avon has closed a public offering of unsecured notes
worth $1.5 billion having maturities of 3, 7, 10, and 30 years.
Excluding the expenses related to the offering, the company is left
with $1.48 billion as net proceeds. Apart from this, Avon replaced
its old $1.0 billion Revolving Credit Facility with a new 4-year
$1.0 billion Revolving Credit Facility.
This largest door-to-door cosmetic
seller is planning to utilize $1.540 billion of net proceeds from
refinancing activities and $650 million of available cash to repay
$2.190 billion of debt. Moreover, the remaining funds under the
refinancing activities will provide financial flexibility to
support the company’s turnaround strategies.
The company believes that the
refinancing activities will result in a rise of 10% in interest
expenses compared with fiscal 2012 owing to increased maturity
period and reduced dependency on floating rate debt. Moreover, the
interest expenses will also get affected, if the company prepays
its $65 million and $25 million worth of notes due in 2014 as a
result of one-time charges related to prepayments.
At the end of fiscal 2012, Avon has
cash and cash equivalents of over $1.2 billion and total debt of
approximately $3.2 billion, which included an outstanding debt of
$572 million maturing in fiscal 2013. During the fiscal 2012 it
paid $104.3 million as interest expense on these outstanding
debts.
Of late, Avon has been facing
challenges on various fronts including declining top and bottom
lines and highly-leveraged balance sheet.
In Nov 2012, Avon outlined some
strategic measures focused on accelerating the top-line growth,
trimming down costs and improving working capital. Management is in
the process of easing business issues and directing the company
toward growth trajectory, bringing back its competitive position
among peers like Revlon Inc. (REV),
L’Oreal SA (LRLCY) and The Est
(EL).
As part of its strategy, in
November, Avon slashed its quarterly dividend by 6 cents to 23
cents per share. Management believes that the reduction in
dividend, coupled with efforts to improve working capital should
ease the financial burden on the company.
Moreover, in Dec 2012, Avon moved
ahead with its earlier announced target of bringing down costs by
$400 million through 2015. As the first move toward this direction,
the company has laid down plans to cut about 1,500 jobs globally
and cease operations in the South Korea and Vietnam markets.
We believe that the company’s
turnaround strategies are paying of, which is evident from it’s
recently released fourth-quarter 2012 operating results. After
reporting dismal results over the past 6 quarters, Avon posted
better-than-expected total revenue and earnings results for the
fourth quarter.
AVON PRODS INC (AVP): Free Stock Analysis Report
ESTEE LAUDER (EL): Free Stock Analysis Report
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REVLON INC-A (REV): Free Stock Analysis Report
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