Fashion seeks refinancing in an era of higher interest rates – WWD

Debt financing tends to come and go with little care in fashion.

But as the Federal Reserve raises interest rates to fight inflation, what would be routine adjustments to corporate balance sheets are starting to come under scrutiny.

Witness VF Corp., which went into debt to buy Supreme for $2.1 billion in 2020, and faces an inconvenient refinancing. The company’s Vans brand is in the midst of a transition, investors are concerned about the company’s dividend payout, and the search to replace former CEO Steve Rendle continues.

The company, which is also the parent of The North Face, Timberland and other brands, has €850m of senior bonds maturing in September.

But while that debt came with an interest rate of just 0.625 percent, refinancing will come expensive.

Last year, the Fed raised its benchmark interest rate seven times – from a range of zero to 0.25 percent to a range of 4.25 to 4.5 percent – making it much more expensive to borrow money.

And since Bloomberg reported last month that VF was considering selling its Jansport business, analysts have speculated that the company could sell that business as well as other brands, possibly also Kipling and Eastpak, and possibly Napapijri, all of which reside in the group’s active portfolio .

Tom Nikic, an analyst at Wedbush, said: “With rising interest rates, the debt taken to fund the Supreme deal, and the company’s recent financial difficulties, they would likely have to refinance these bonds at a much higher interest rate, so they might prefer to divest some of the non-core assets business to raise cash to repay the bonds at maturity, rather than refinancing the full amount.

“If they want to generate $500 million in cash, they’d probably need to sell all four active ‘non-core’ brands – brands excluding Vans and Supreme – which together generate about $700 million in revenue, so 0.7x would yield multiples of sales [approximately] $500 million in proceeds,” said Nikic.

VF doesn’t behave as much as the fashion powerhouse it used to be. But if its refinancing is causing so much anxiety, one can only assume that other companies aren’t far behind.

Financial sources tell WWD that the big banks that typically fund big fashion players are being more cautious, forcing companies to be more creative as they prepare to emerge from the consumer crisis or simply to keep the lights on.

Leave a Reply

Your email address will not be published. Required fields are marked *