I feel like the real story to HBI is their 3.0x Debt/EBITDA covenant they need to hit 9/30/09 (keep in mind that's covenant EBITDA and debt, and their EBITDA calc for the covenant is pretty generous).
Anyway, they are at 3.3x now after paying down a TON of debt in 2008. You can pretty much assume that every penny of free cash flow is going to hit that covenant, and with the manufacturing transition from the US to SE Asia moving towards completion, they should be able to reduce their working capital. Also, interest coverage is solid and the risk of default is pretty low. The senior unsecured bond, rated single B, is yielding as though its investment grade.
Here is what's scary. They got hit with an 11% Q over Q decrease in revenue in Q4, and are projecting even more weakness in Q1'09. The worst results they have in their history (until this point) is a 4% year over year decrease, so yeah, things are bad.
I think this is a good name to be in for the long run. They are actively paying down their debt, and are lowering their entire cost structure. Brands are awesome and sell at a surprisingly small premium to generic brands. WMT doesn't have THAT much incentive to kick them out (though that would be killer), as demonstrated by their ability to successfully pass along a 4% per unit price increase.
Here is the question... when to get in. If they amend the credit agreement, it'll jack up interest in the short term, and everything in the capital structure below the loans is going to get a bit of a beating. If they DON'T amend, and hit their 3.0 covenant on 9/30, look for a HUGE pop in the price. Wait and you might miss some nice upside. Get in now and you could get a beating with higher interest payments, and might not get any significant recovery until interest rates reset to their normal levels.
Thoughts? I think I am getting in tomorrow. In 5 years, in any case, I think it'll look smart.