Fashion Looks to Refinance in an Era of Higher Interest Rates – WWD

Debt financing usually comes and goes with little to no epidemic.

But as the Federal Reserve pushes up interest rates to combat inflation, what was once a run-of-the-mill adjustment to corporate balance sheets is starting to appear under the microscope.

Witness VF Corp. racking up debt to acquire Supreme for $2.1 billion in 2020. The company’s Vans brand is in the midst of a turnaround, investors are worried about the company’s dividend payments, and the search for a replacement for former CEO Steve Rendle continues.

The company, which also owns The North Face, Timberland and other brands, has €850 million in senior debt maturing in September.

But even though that debt came with interest payments of just 0.625%, the refinancing is very significant.

The Federal Reserve raised the base rate seven times last year, expanding it from the 0-0.25% range to the 4.25-4.5% range, significantly increasing borrowing costs.

After Bloomberg reported last month that VF was considering selling its Jansport business, analysts speculated that the company could divest itself of that business and other brands, possibly Kipling, Eastpak and Napapijri. I’m here. Group’s active portfolio.

Wedbush analyst Tom Nikic said: Rather than refinancing the entire amount, we prefer to sell some non-core assets to raise cash to pay off the bonds at maturity.

“If they’re looking to generate $500 million in cash, they’ll probably need to sell all four ‘non-core’ active brands (brands excluding Vans and Supreme) for a total of about $700 million in revenue. Therefore, the 0.7x sales ratio is [approximately] $500 million in revenue,” Nikić said.

VF isn’t acting like the fashion powerhouse it once was. But if that refinancing is causing a lot of anxiety, we can only assume other companies are not far behind.

Financial sources said WWD said the big banks that typically lend to fashion mega players have been more cautious, with businesses looking to emerge from a consumer slowdown or simply to keep the lights on. , says we need to be more creative.

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