Zacks_Analysts' Blog : Warnaco Completes Debt Offering - Analyst Blog

Warnaco Group Inc. (WRC) recently announced the completion of a senior secured term loan offering of $200.0 million. The debt has been scheduled to mature in 2018. Warnaco will pay interest at a floating rate of 1% bearing a fixed margin of 2.75%.

Warnaco stated that it plans to use the term loan proceeds for general corporate purposes, which include funding internal growth and acquisitions, repaying revolving credit borrowings and repurchasing common stock.

The Term Loan has been assigned ratings of BBB- by Standard & Poor’s and Ba1 by Moody’s Corp. (MCO), respectively, and they have affirmed the Company’s corporate credit ratings at these levels with a stable outlook. The credit rating acts as a financial indicator for potential investors.

Warnaco intends to use the proceeds also to go ahead with its 5 million share repurchase plan. With this Warnaco will be able to return shareholder value, which will surely boost investor sentiment.

In the recently concluded first quarter of fiscal 2011, Warnaco exited the quarter with cash and cash equivalents of $174.1 million compared to $157.5 million a year ago. The Company spent $29.1 million to purchase 561,000 shares of its common stock under a share repurchase program.

Total debt of the company stood at $1, 46,423 million, down from $1, 66,568 million in the previous year.In the recently concluded third quarter of fiscal 2011, total debt (long term, net of maturities plus short term) of the company stood at $2.81 billion, down from $3.95 billion in the previous quarter. Debt-to-capitalization ratio in the quarter was 28.0% versus 35.9% in the prior quarter.

Warnaco exited the quarter with $1.63 billion in cash and cash equivalents, down from $2.43 billion reported in the previous quarter. The company’s net cash balance (cash less debt including current portion) was a deficit of $1.19 billion, compared with a deficit of $1.29 billion in the prior quarter, a noticeable improvement.

Warnaco delivered decent first quarter results of $1.10 per share. However, it missed the Zacks Consensus Estimate by 13.4%.

Warnaco, which competes with Limited Brands Inc. (LTD) and Maidenform Brands Inc. (MFB), has strong international presence and ever expanding direct-to-consumer business, which is encouraging and should drive growth.

We currently have a Zacks #2 Rank on Warnaco shares, which translates into a short-term Buy rating.