Moody’s Investors Service upgraded Hanesbrands, Inc.’s speculative grade liquidity rating (SGL) to SGL-2 from SGL-3 to reflect Hanesbrands’ improvement in liquidity as it has addressed all of its 2024 debt maturities.
Moody’s said Hanesbrands recently refinanced its $1.4 billion of 2Q’24 bond maturities with a $900 million term loan due 2030 and $600 million in notes due 2031. The refinancing also eliminated the springing 1Q’24 maturities on the company’s existing $1.0 billion revolver and approximately $980 million Term Loan A which both now come due in November 2026. The SGL upgrade also reflects the expected improvement in cash flow generation in calendar 2023 and increased revolver availability.
All other ratings are unchanged including the company’s Ba3 corporate family rating (CFR), Ba3-PD Probability of Default (PDR), Ba2 senior secured bank credit facilities and B1 senior unsecured notes rating. The outlook is negative.
Moody’s said, “Hanesbrands’ Ba3 CFR reflects the company’s significant scale in the global apparel industry, its well-known brands, leading share in the innerwear product category and typically low-cost supply chain. We expect that the company will remain focused on reducing leverage (the stated long-term net leverage target is 2.0x-3.0x on reported EBITDA) while executing its multiyear growth strategy (Full Potential Plan). The Ba3 CFR also reflects the company’s good liquidity and sufficient covenant cushion following a recent amendment. Additionally, management has taken creditor-friendly steps such as halting dividends and reducing capital expenditures which will bolster free cash flow and liquidity. However, the company is currently dealing with weak customer demand, a material customer concentration and elevated costs. These factors have led adjusted debt/EBITDA to increase to 5.4x for the year-ended Dec 31, 2022 from 3.3x a year earlier while EBITA/interest has also reduced to 3.3x from 5.0x over the same time. Moody’s anticipates that the current weak operating environment will run through mid-2023 with earnings expected to improve in 2H’23 as the company benefits from lower-cost inventory and normalization in demand. This should lead to Moody’s adjusted leverage being slightly above 5.0x and EBITA/Interest being just below 2.0x by year-end 2023. Also, we expect that Hanesbrands will remain focused on reducing leverage while executing its multiyear growth strategy (Full Potential Plan).
“The negative outlook reflects Moody’s view that conditions will remain challenging for Hanesbrands through 1H’23. The negative outlook also reflects the risks associated with a highly uncertain consumer spending environment that may temper or delay the very significant earnings recovery that is required starting in 2H’23 through 2024 for leverage and coverage metrics to improve to levels that are appropriate for the Ba3 corporate family rating.”