| Revlon spokesmodel |
Revlon Consumer Products Corp. has improved its near-term liquidity position, replacing credit facilities that were likely to be in covenant violation as early as January 2005 with bank debt that has more achievable covenant targets and increases borrowing availability. But Moody's Investors Service still has a negative ratings outlook given that the company's intermediate term liquidity position remains a concern, especially given effective debt maturities next year. A Revlon spokeswoman did not respond to questions. Moody's assigned a B2 rating to Revlon's five-year, $160 million revolver, a B3 rating to its six-year, $750 million term loan and upgraded its speculative-liquidity rating one notch to 3, reflecting these improvements. Citigroup is leading the new transaction, which launched last week. Pricing on the asset-based revolver and term loan is reportedly LIBOR plus 2 1/2% and LIBOR plus 6-6 1/4%, respectively. Proceeds are being used to refinance Revlon's $290 million credit facility and fund a tender offer for the company's $363 million 12% notes. In April, J.P. Morgan and Citi were in the market with a $680 million credit facility, consisting of a $150 million revolver and $530 million term loan. The deal, designed for similar purposes, was pulled due to "unfavorable market conditions," the company said in a press release.
The new transaction is viewed as a positive alongside the cash-flow affects of Revlon's $800 million debt-for-equity exchange done earlier this year, as well as the company's improving profitability and cash flow potential. Moody's believes Revlon has enough liquidity to meet anticipated borrowing needs over the next twelve months. Liquidity is further enhanced by ongoing credit line commitments of about $151 million from MacAndrews & Forbes.
But Moody's also downgraded the company's senior unsecured and senior subordinated notes as a result of the increase in higher priority senior debt relative to both the previous debt structure and the refinancing that was pulled earlier this year. Moody's anticipates negative free cash flow over the next year and Revlon has limited alternative liquidity sources with the vast majority of its collateral being pledged to the senior credit facilities.
Revlon will face acceleration under the term loan if its senior notes, which are due in February and November 2006, are not refinanced by October 2005 and July 2006, respectively, Moody's says. This leaves the company highly reliant on a $110 million equity commitment from MacAndrews Forbes and on the state of the capital markets. The $75.5 million 9% notes and $116.2 million 8.125% notes were both downgraded from Caa1 to Caa2. Finally, the company's leveraged profile, although improving, remains a concern as Revlon participates in an industry that requires material upfront brand support and product development expenditures with uncertain customer receptivity, Moody's adds.