Spectrum Brands Holdings Inc. (SPB) and its subsidiary Spectrum Brands Inc. remain keen on saving on its corporate interest expenses by swapping its existing term loan with two new term loans.
In the process, the company has initiated a refinancing transaction, wherein it will refinance its $513 million U.S. term loan B, replacing it with a new €200 million Euro term loan (about $270 million U.S. dollars) and a $250 million U.S. term loan. The two new debt instruments will mature in Sep 2019, which is three months prior to the Dec 2019 maturity of the existing term loan.
Further, the company highlighted that the new $250 million U.S. term loan will be clubbed with the company’s ongoing $300 million U.S. term loan C that matures in Sep 2019. The company expects to complete the transaction by Dec 31, 2013.
We believe this act of refinancing existing debt instruments is an effective measure to lower the cost of capital, enabling the company to reduce its interest expenses. Additionally, diversifying its term loan in two currencies facilitates the company to fine-tune its debt structure to match its regional cash flows.
Earlier, in Oct 2013, the company made an effort to lower its term loan by repaying about $100 million in term debt. This enabled the company to achieve its pre-announced target of reducing the term loan by $200 million in fiscal 2013.
As a policy, Spectrum Brands remains focused on using its free cash flow to lower its debt burden. Looking into fiscal 2014, the company intends to further reduce its debt by $250 million or above. Moreover, the company hopes to generate free cash flow of $350 million and projects capital expenditure in the range of $70.0–$75.0 million.
Other Stocks to Consider
Currently, Spectrum Brands carries a Zacks Rank #3 (Hold). Some better-ranked consumer discretionary products stocks include Quicksilver Inc. (ZQK), Hanesbrands Inc. (HBI) and Nutrisystem Inc. (NTRI). Of these, Quicksilver and Hanesbrands carry a Zacks Rank #1 (Strong Buy), while Nutrisystem has a Zacks Rank #2 (Buy).