Brown-Forman to Bring Down Debt - Analyst Blog
January 24 2013 - 7:50AM
Zacks
In order to lower interest payout
on borrowings, Brown-Forman Corporation (BF.B)
recently announced that it would redeem its $250 million of 5%
senior notes on Feb 25, 2013. A combination of available cash and
short-term borrowings will used to fund the redemption.
The strategy signifies the
company’s ability to generate cash flow, which will be utilized to
bring down debts, leading to reduction in interest expenses.
The redemption of the senior notes,
which are due in 2014, will result in a pre-tax interest savings of
about $2 million and $8 million in fourth-quarter of fiscal 2013
and fiscal 2014, respectively. However, it is expected that the
company will bear a pre-tax expense of approximately $9 million
related to the redemption in the fourth quarter.
Borrowing costs have gone down
significantly, helping the companies to obtain easy financing at
compelling prices. Corporate bonds and borrowings from banks are in
high demand as the U.S. treasuries are yielding low rates.
On Dec 12, 2012, Brown-Forman
completed its offering of $750 million unsecured senior notes.
According to the company, the notes were offered in three different
tranches having distinct maturity dates. The first $250 million
notes, carrying an annual interest rate of 1.00%, will mature on
January 15, 2018. Another $250 million worth of senior notes, which
were issued at an annualized interest rate of 2.25%, is due on
January 15, 2023. The last $250 million of notes carry an annual
interest rate of 3.75% and maturity date of January 15, 2043.
Debt offerings of big companies are
being oversubscribed, providing corporations the option to price
offerings at lower rates. Hence, several companies are coming up
with debt offerings to lower interest expense either by refinancing
outstanding borrowings or redeeming the higher interest bearing
debts. Earlier this month, Staples Inc.(SPLS)
announced the simultaneous offering and redemption of debt to
reduce interest expenses.
Moreover, some companies are
offering debts to finance long-term investments, such as
PVH Corporation
(PVH). In late Dec 2012, the
company had issued $700 million of senior unsecured notes to pay a
portion of the cash consideration related to the acquisition of
The Warnaco Group, Inc.
(WRC).
Currently, Brown-Forman carries a
Zacks Rank #2 (Buy).
BROWN FORMAN B (BF.B): Free Stock Analysis Report
PVH CORP (PVH): Free Stock Analysis Report
STAPLES INC (SPLS): Free Stock Analysis Report
WARNACO GRP INC (WRC): Free Stock Analysis Report
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