HanesBrands announced it will use its strong cash position to reduce long-term debt this year by another $250 million and reduce interest expense in 2013 by prepaying half of its $500 million of 8 Percent Senior Notes Due 2016 a year earlier than originally anticipated.
The redemption of the bonds on Dec. 27 will reduce the company’s total bond debt to $1.25 billion, and the company’s year-end long-term debt is expected to be less than 2.5 times EBITDA, a significant achievement in leverage reduction since the company’s 2006 spinoff.
By using a make-whole provision that is part of the bond indenture, the company has determined that it can prepay its 8 percent notes now with no additional interest and call premiums than if it waited to retire the bonds in December 2013.
“We have a substantial amount of cash on hand now as a result of strong cash flow in 2012, we are committed to reducing our debt, and we have determined there is no benefit or need to wait to start prepaying our 8 percent notes,” Hanes Chairman and Chief Executive Officer Richard A. Noll said. “With this debt payment, the era of being a highly leveraged company is a thing of the past.”
The company expects to take a pretax charge of approximately $34 million in the fourth quarter of 2012 for bond prepayment expenses due through Dec. 15, 2013, and acceleration of noncash unamortized debt costs.
Fourth-Quarter 2012 and Full-Year 2013 Guidance
Other than the approximately $34 million charge related to early bond redemption to be incurred in the fourth quarter, all other fourth-quarter guidance issued on Oct. 23, 2012, in conjunction with third-quarter results remains the same. That guidance included expected net sales for the quarter of approximately $1.13 billion to $1.17 billion and diluted earnings per share for continuing operations of $1.00 to $1.06.
For 2013, the prepayment of bonds will reduce interest expense, although a resulting higher tax rate will partially offset the benefits. The company expects interest expense of approximately $120 million in 2013, which includes approximately $15 million in expected prepayment expenses and accelerated noncash unamortized debt costs to retire the remaining $250 million of 8 percent notes in 2013. As a result, Hanes has increased its 2013 EPS guidance from the low $3 range to expectations of $3.25 to $3.40. Net sales are expected to be approximately $4.6 billion to $4.7 billion, and free cash flow is expected to be $300 million to $400 million.
The company does not intend to speak in more detail about its 2013 guidance until the release of its fourth-quarter and full-year 2012 results.
