Revlon postpones refinancing as debt offer falters

Related tags Revlon Finance

Revlon's shares dropped as much as 8.6 per cent before recovering
slightly, Friday, as the cosmetics company's financial makeover
plans faltered after its debt offer was cancelled due to
"unfavourable market conditions".

Revlon​ was offering notes, known as 'junk bonds', whereby investors buy some of the company's debt. Such investments can yield high returns but are considered to be relatively risky because if the company goes bust, the investment is lost. Financial analysts said that the lack of take-up of the offer was not really a reflection on confidence in the company to recover from its financial woes, but more that there has been a recent downturn in the high-yield debt market generally. There is currently little interest among investors in such high-risk high yield investments.

"The fact that the company decided to pull the deal had more to do with the state of the high-yield market than the credit quality of Revlon, because we are seeing resistance to other deals out there as well,"​ said Terry Dwyer, an analyst at high-yield research firm KDP Investment Advisors. "Before the recent downturn in the high-yield market, Revlon was in a good position to sell notes, thanks to its progress on reducing debt, increasing cash flow and cutting costs,"​ Dwyer added.

Also commenting on the downturn, high-yield portfolio manager for Barclays Global Investors Tom Parker said: "In the high-yield market right now, people are happy with what they have, risk-wise. There is no compelling reason to go chasing this thing."

The seven-year notes were expected to yield 10.25 to 10.50 per cent, but with cash leaving the market, it is not only Revlon that have struggled to sell new issues. In addition to Revlon, four other junk-rated borrowers have pulled junk bond sales or found other sources of funding in the last two weeks.

In a statement, the New York-based company said it had ended a tender offer for outstanding bonds and postponed plans for a further offering of notes and credit facilities. The proposed debt sale was part of an effort to recover from a debt splurge, as Revlon pushes to regain market share, increase cash flow and cut costs. The sale was expected to give the company some time to implement a turnaround plan.

Revlon won credit ratings upgrades last month after it trimmed debt by about US$800 million (€665 m) earlier this year in a debt-for-equity swap, but its note offering is still in the "CCC" range, a highly speculative grade signaling substantial default risk. Moody's rates the notes "Caa1" and Standard & Poor's rates them roughly one notch lower at "CCC" as compared with "investment grade" offerings, which are rated "A-". Demand for "CCC-rated" bonds has evaporated as an erratic stock market and worries about rising interest rates curbed investors' appetite for debt of highly leveraged companies. Bonds with "CCC" ratings have posted losses for four months and are down 3.3 per cent this month, according to Merrill Lynch.

It is not yet clear exactly what impact the cancellation and postponement will have on Revlon's long-term strategy.

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