Fashion Looks to Refinancing in an Age of Higher Interest Rates – WWD

Debt financing often comes and goes on a trendy little note.

But as the Federal Reserve raises interest rates to fight inflation, unusual changes in company balance sheets are starting to come under scrutiny.

Facing what has become an unfavorable refinancing and borrowing money to buy Supreme for $2.1 billion in 2020, Witness VF Corp. The company’s Vans brand is in the midst of a comeback, investors are worried about the company paying dividends, and the search continues to replace former CEO Steve Rendle.

The company, which is also the parent company of The North Face, Timberland and other brands, has 850m euros in premium bonds due in September.

But as this debt comes with an interest payment of only 0.625 percent, refinancing will be expensive.

The Fed increased its benchmark interest rate seven times last year—from zero to 0.25 percent, from 4.25% to 4.5 percent—making it much more expensive to borrow money.

And since Bloomberg reported last month that VF is considering selling its Jansport business, analysts have predicted the company may divest that business and other brands, perhaps Kipling and Eastpak and perhaps Napapijri. active portfolio of the group.

Tom Nikic, an analyst at Wedbush, said: “Amid rising interest rates, rising debt to fund the Supreme deal, and the company’s recent financial volatility, they will likely have to refinance these bonds at a much higher interest rate so they can get a higher interest rate.” Rather than refinance the entire amount, they prefer to sell off some non-core assets to raise cash that will help pay off the bonds at maturity.

“If they want to raise $500 million in cash, they’ll likely have to sell all four ‘non-essential’ active brands (brands excluding Vans and Supreme) and these brands generate around $700 million in total revenue, i.e. 0.7x sales multiplier return. [approximately] 500 million dollars in,” Nikic said.

VF isn’t acting like the fashion giant it used to be. However, if its refinancing is causing so much concern, it can be assumed that other companies are not far behind.

Financial sources tell WWD that the big banks that typically fund fashion’s mega-players are being more cautious, forcing companies to be more creative as they prepare to recover from any consumer slowdowns or just keep the lights on.

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