Revlon touts impact of recent debt deal, other transactions, as interest costs fall

By Paul Deckelman

New York, May 6 - Revlon Inc. is sitting pretty, debt-wise, as a result of its recent sale of new six-year bonds and the related debt redemption transactions the New York-based cosmetics maker was then able to undertake using the proceeds from that bond sale. The bottom line, company executives said on a Friday conference call, was that Revlon extended its average bond debt maturities, while reducing its exposure to rising interest rates by taking out some of its floating-rate bank borrowings.

Those transactions are the latest in a series of debt deals over the past year through which the formerly struggling company essentially made over its balance sheet, getting rid of a considerable amount of high-coupon debt and replacing it with equity or more affordable financing.

That in turn helped to lower Revlon's interest costs - a key factor in Revlon's being able to cut its net loss for the first quarter ended March 31.

Revlon reported a net loss in the first quarter of $46.8 million (13 cents per diluted share), an improvement over the year-earlier net loss of $58.2 million (63 cents per share). The company's president and chief executive officer, Jack Stahl, said this improvement stemmed, in part, from a "significant" reduction in interest expense year-over-year, as this financial measure fell to $29.7 million in the latest quarter, from $44.6 million a year earlier.

The first-quarter loss was also lessened relative to last year's by lower costs associated with the early extinguishment of debt, which were considerable in the year-earlier period due to the huge debt-for-equity exchange offers that were consummated in March 2004. That also helped to bring down the earnings per share figure, since the year-ago debt deal significantly increased the number of Revlon common shares outstanding, essentially diluting the net loss figure.

The centerpiece of Revlon's financing efforts during the first quarter was the sale in March by its Revlon Consumer Products Co. subsidiary of an upsized offering of $310 million of new 9½% senior notes due 2011. Proceeds from that offering were used to retire all of the company's $116.2 million of outstanding 8 1/8% senior notes due 2006 and all of the $75.5 million of its 9% senior notes due 2006 - meaning that Revlon has no bond maturities coming up until 2008, when its approximately $328 million of 8 5/8% senior subordinated notes come due on Feb. 1.

Apart from those 9½% and 8 5/8% bonds, Revlon had outstanding at the end of the first quarter $700 million of borrowings on its term loan facility, a decrease of $100 million from the previous quarter, as Revlon pre-paid $100 million on the term loan using the remaining proceeds from the 9½% bond deal. By doing so, Revlon thus reduces its exposure to rising interest rates, since the term loan carries an interest rate of Libor plus 600 basis points.

The company also $17 million of letters of credit issued but undrawn. There were no borrowings outstanding under the its multi-currency revolving credit facility and none outstanding under the line of credit extended to Revlon last year as part of its refinancing transactions by MacAndrews & Forbes - the investment vehicle through which Revlon's chairman, flamboyant New York billionaire Ronald O. Perelman, exercises control over the company.

Chief financial officer Thomas McGuire said that between $115 million of unused borrowing availability under the multi-currency revolver, $152 million of availability under the McAndrews & Forbes commitment and $71 million of unrestricted cash, Revlon had about $339 million of available liquidity as of the end of the quarter.

Still committed to equity issue

In answer to an analyst's question during the conference call, McGuire said that there has been "absolutely no change" in Revlon's previously announced commitment to issue $110 million of equity by March 2006, with proceeds to go to reduce debt.

"The $110 million will happen by the end of the 2006 first quarter," McGuire declared. "We will get that completed in the next 10 months or so."

That equity issue will be yet another stage in Revlon's ongoing effort to strengthen its capital structure. That series of refinancing transactions, of which the 9½% note sale and the takeout of the 8 1/8% and 9% '06 notes is the latest, began last February with the announcement of a massive and complex debt-for-equity swap, which reduced Revlon's debt and increased its equity by an aggregate of $800 million.

Last summer, Revlon entered into a $960 million credit facility, provided by Citigroup Global Markets Inc. and its Citicorp USA Inc. unit, which included the $800 million term loan and a companion revolver agreement. Proceeds of the new facility were used to replace the company's previous facility, repaying $292 million of outstanding borrowings, and to redeem all $363 million of the company's 12% secured notes due 2005.

The capital structure improvements have come as Revlon has tried to deploy sufficient resources to allow it to keep up with its peers in the fiercely competitive cosmetics business, where it has in recent years lost ground to such rivals as Estee Lauder, L'Oreal and consumer products giant Proctor & Gamble's Cover Girl and Max Factor lines.

In the first quarter, Revlon ratcheted up its promotional efforts on behalf of its key new products, boosting advertising spending sharply. That was a major factor in a reduction in adjusted EBITDA to approximately $21.6 million, well down from about $44.5 million in the first quarter of 2004. It also caused the company to fall into the red on an operating results basis, with an operating loss of approximately $2.1 million in the first quarter of 2005, versus operating income of $20.1 million in the first quarter of 2004.

Even with the increased promotion, Revlon's net sales in the 2005 first quarter were down 2% to $301 million from year-ago net sales of $308 million; in North America, net sales in the first quarter declined 6% to $194 million, versus $206 million in the first quarter of 2004.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.