HD Supply Holdings Inc. (HDS)’s higher-interest debt would be “economically burdensome” to repay before 2015, when the price of paying off some bonds early lowers, said Evan Levitt, who was hired as chief financial officer in December.
The industrial supply distributor is trying to cut its 7.7 ratio of net debt to earnings before interest, taxes, depreciation and amortization to 3, Levitt wrote in a Jan. 21 e-mail. HD Supply is planning that through earnings growth and debt reduction, though Levitt didn’t specify what debt the company would cut.
HD Supply’s $1.25 billion of 8.125 percent notes can be called at 106.09 cents on the dollar on April 15, 2015, and 35 percent can be redeemed at 108.125 cents before that with proceeds from an equity offering, according to data compiled by Bloomberg. The debt, which is due in April 2019, traded at 111.94 cents to yield 5.5 percent Jan. 23, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Its $4.2 billion of bonds, including 11.5 percent and 11 percent debt due in 2020, can be repaid at make-whole premiums, the data show. The Atlanta-based company has flexibility to pay down its $480 million outstanding on an asset-based lending facility and $988 million on a term loan, Levitt wrote. The term loan pays the higher of 4.5 percent or 350 basis points over the London interbank offered rate, Bloomberg data show.
“We will evaluate such opportunities as market conditions warrant,” he wrote.
HD Supply lowered its annualized cash interest by $100 million after paying back $950 million of 10.5 percent notes with proceeds from a $1.05 billion initial public offering in June, Levitt said.
Levitt, previously the corporate controller, is taking over from Ron Domanico, who will retire in April. Libor, the rate at which banks say they can borrow from each other, was set at 23.5 basis points on Jan. 24. A basis point is 0.01 percentage point.
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