Revlon Needs Debt Makeover as Bills Come Before Beauty

Revlon's Website

Revlon’s (NYSE:REV) stock has been choppy lately swinging 10-20% in either direction on small news items. Recently a fire in its Venezuela operations led to a near 10% dip though this market makes up only 3% of its sales. Investors’ concerns regarding Revlon’s debt levels underlies this stock volatility though its recent efforts to refinance some of its existing debt has helped to alleviate concerns. Revlon is one of the leading makers of cosmetics and beauty care products and competes with personal care companies like L’Oreal (PINK:LRLCY), Estee Lauder (NYSE:EL) and Avon Products (NYSE:AVP).

We value Revlon with a near $17.70 Trefis price estimate of its stock which is roughly 10% ahead of its current market price. Here we take a closer look at some of the recent events that have contributed to Revlon’s swings in the past month.

Refinancing of Revlon’s existing term loan facility

In mid-May, Revlon announced a new term loan facility refinanced the outstanding $792 million loan with an $800 million loan while reducing Revlon’s effective interest rate on the outstanding debt and extending its maturity for this debt to November 2017 from its March 2015 maturity. This move took advantage of the favorable fund raising environment and gave the company some more flexibility with its debt obligations.

We wrote recently how earnings have held up for the company and that debt was on of the biggest outstanding factors, see Revlon Earnings Show Recovery Underway, Debt Levels Should be Next Focus.

Fire in Revlon’s Venezuelan manufacturing facility

A fire damaged Revlon’s facility in Venezuela on June 5, 2011. The company has yet to release the extent of the damage to its business but given that Venezuela makes up for only 3% of Revlon’s sales total asset base, the subsequent 9% drop (from $16.50) in Revlon’s stock was exaggerated in our view.

See Revlon Slumps 15% on Venezuela Factory Fire, Creates Buying Opportunity.

Refinancing of Revlon’s revolving credit facility

Earlier this week, Revlon announced that it refinanced its existing revolving credit facility that was set to expire in March 2014, pushing its new $140 million revolving credit facility to June 2016 while securing better financing terms from the banks underwriting these loans.

Again the reduced interest expense was met with a favorable response as Revlon’s stock climbed up to current levels of near $16 with a further recovery expected in the near future. ^[1]

View our detailed analysis for Revlon

1. Revlon Completes 2011 Revolving Credit Facility Refinancing, Business Wire, June 16’ 2011 [↩]