Hanesbrands’ Debt Ratings Outlook Lowered To Negative

Moody’s Investors Service Inc. revised its debt rating outlook on Hanesbrands to negative from stable to reflect the rating agency’s view that the company’s credit metrics will continue to weaken in 2022 due to soft customer demand, high inventory levels and still elevated input costs.

These factors have led Moody’s adjusted debt/EBITDA to increase to 4.6x for the LTM ending Oct 1, 2022 from 3.3x at year-end 2021. Moody’s EBITA/interest has also eroded to 4.3x from 5.0x over the same time period. Moody’s anticipates leverage to further increase to >5.0x and EBITA/Interest coverage to decline to <3.5x by year-end 2022.

Moody’s also downgraded Hanesbrands’ speculative grade liquidity rating (SGL) to SGL-3 from SGL-2. At the same time, Moody’s affirmed Hanesbrands’ ratings, including the Ba2 corporate family rating (CFR) and Ba2-PD probability of default (PDR), the Ba3 senior unsecured rating and the Ba2 senior unsecured rating at the HF Lux entity.

The outlook change to negative reflects Moody’s view that the company’s credit metrics will continue to weaken in 2022 due to soft customer demand, high inventory levels and still elevated input costs. These factors have led Moody’s adjusted debt/EBITDA to increase to 4.6x for the LTM ending Oct 1, 2022 from 3.3x at year-end 2021. Moody’s EBITA/interest has also eroded to 4.3x from 5.0x over the same time period. Moody’s anticipates leverage to further increase to >5.0x and EBITA/Interest coverage to decline to <3.5x by year-end 2022.

Moody’s said, “Hanesbrands, Inc.’s Ba2 CFR reflects the company’s significant scale in the global apparel industry, its well-known brands, leading share in the innerwear product category and low-cost supply chain. We expect that the company will remain focused on maintaining moderate leverage while executing its multiyear growth strategy (Full Potential Plan). The company has adequate liquidity through 2023 and sufficient covenant cushion following a recent amendment. However, the company is dealing with currently weak customer demand, a material customer concentration, elevated costs, increasing leverage and refinancing risk. Longer-term, we expect Hanesbrands’ operating performance and credit metrics to improve as customer demand reverts to historical patterns and as the company executes on new product launches, inventory de-stocking and optimizes its manufacturing capacity and distribution center footprint.”