Gildan Activewear Inc.’s proposed benchmark-sized senior unsecured notes and its existing C$1.4 billion senior unsecured notes received ratings of Baa3 from Moody’s Ratings and BBB- from S&P Global Ratings.

The final amount and maturity of the unsecured debt offering have yet to be determined. Proceeds from the proposed senior unsecured notes, along with new term loans, will be used to repay Hanesbrands Inc.’s $2 billion debt upon the closing of Gildan’s acquisition of Hanesbrands.

On August 13, Gildan and Hanesbrands announced that they had entered into a definitive merger agreement under which Gildan will acquire U.S.-based Hanesbrands for $4.5 billion on an enterprise value basis. The transaction will be funded through a share swap and cash, with Gildan assuming and refinancing Hanesbrands’ estimated $2 billion debt at close. The acquisition is subject to approval by Hanesbrands’ shareholders and relevant regulatory authorities, with an expected close by the end of 2025 or early 2026.

Moody’s said Gildan’s Baa3 long-term issuer rating and stable outlook have been reviewed in the rating committee, and they remain unchanged.

Moody’s said in its analysis, “Gildan’s credit profile, post the acquisition of Hanesbrands Inc. (Hanesbrands, B1 stable), benefits from: 1) its large scale and leading market position in North America in everyday basic apparel which has low fashion risk; 2) its low cost vertically integrated business model that drives competitive pricing and high EBITDA margins of around 22 percent compared to traditional retail apparel peers; 3) a prudent financial policy which balances shareholder returns within a target 1.5x to 2.5x net debt /EBITDA; and 4) solid free cash flow that is available to reduce post-acquisition debt levels, with debt/EBITDA falling toward 2x over the next 18 months from a post transaction level of 2.9x (pro forma 2025 ending 31 December).

“The company is constrained by: 1) limited revenue visibility driven by replenishment orders tied to consumer demand and channel inventory levels; 2) risks associated with integrating an equally sized business and delivery of cost synergies; 3) vulnerability to volatility in commodity prices, particularly cotton; and 4) reliance on a few large customers, with order volumes tied to the strategic actions and operating stability of these customers.

“Gildan’s liquidity is good over the financial period ending December 2026. Sources of liquidity of around $1.9 billion compared to $450 million of debt repayments in 2026, which include a $300 million term loan due June 2026 and a $150 million note due August 2026. Liquidity is supported by pro forma cash of about $179 million at the end of 2025, full availability under its $1.2 billion revolving credit facility expiring March 2030, and about $560 million of expected free cash flow generation for 2026. We expect Gildan to remain in compliance with financial covenants over the next 12 months.

“The outlook is stable and reflects our view that, post the acquisition of Hanesbrands, Gildan will prioritize free cash flow toward debt reduction such that debt/EBITDA is reduced to around 2x. The stable outlook also reflects our expectation that revenue growth will be supported by market share gains and operating margins will benefit from cost synergies as Gildan integrates Hanesbrands.”

S&P likewise stated that its BBB- issuer credit rating and stable outlook on Gildan remain unchanged.

S&P said in its statement, “The stable outlook reflects our expectation that Gildan will successfully integrate the acquisition of Hanesbrands while maintaining steady operating performance. The outlook also reflects our expectation that the company will improve leverage to 2.2x-2.3x due to the integrated company’s significantly larger EBITDA base and free cash flow.

“We view the acquisition of Hanesbrands favorably, anticipating a complementary and significantly larger combined company with doubled revenues and EBITDA. The acquisition will diversify Gildan’s product portfolio, strengthening its brand recognition and expanding its reach into innerwear and large-scale national retailers. While we expect initial margin compression due to integration and restructuring costs, synergies are projected to improve consolidated margins to about 24 percent-25 percent in three years.”

Image courtesy Gildan