Hillman Successfully Reprices Senior Term Loan Lowering Interest Expense
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Insights
Hillman Solutions Corp.'s recent move to reprice its existing term loan can be seen as a strategic financial decision aimed at optimizing its capital structure. The reduction in the interest rate margin by 25 basis points, alongside the elimination of the Credit Spread Adjustment, will lead to an estimated annual savings of $2.6 million. This action indicates a proactive approach to debt management and reflects positively on the company's creditworthiness.
The improved financial position, as highlighted by the CFO, is corroborated by the reduction in net inventories and gross debt position. The potential for further interest rate margin reductions, contingent on the first lien leverage ratio, offers an additional incentive for the company to maintain a strong balance sheet. The credit rating upgrades and affirmations by S&P and Moody's serve as external validations of the company's financial health and could positively influence investor confidence.
However, investors should consider the one-time fees associated with the repricing and the impact of new swap agreements on the company's financial flexibility. The fixed interest rate on a portion of the term note may provide stability in interest expenses, but it also limits the potential benefits of future rate decreases. Overall, the company's debt restructuring efforts seem to be a step towards financial improvement and cost savings.
From a market perspective, Hillman's actions to improve its debt terms and the subsequent credit rating upgrades signal to current and potential investors that the company is on a trajectory of financial stability and prudence. The market often reacts favorably to such news as it suggests a lower risk profile and enhanced ability to generate shareholder value.
Furthermore, the removal of the CSA and the favorable interest rate environment, as indicated by the company's ability to secure lower rates, could be reflective of broader market trends. Investors may interpret these developments as a sign of Hillman's strong bargaining position with lenders and its robust financial strategy.
It's important for stakeholders to monitor Hillman's commitment to using free cash flow to pay down debt, as this will likely have a significant impact on its leverage ratios and subsequent interest rate margins. The company's focus on balance sheet strength could be a differentiating factor in its sector, potentially leading to a competitive advantage.
Hillman's recent repricing initiative and swap agreements reflect an environment where companies are seeking to lock in favorable interest rates ahead of potential market volatility. The company's ability to negotiate better terms is indicative of a robust credit profile, which is essential for debt market stakeholders.
The decision to enter into new swap agreements for a significant portion of the term note at a fixed rate plus the interest rate spread could be seen as a hedge against future interest rate fluctuations. This move might be particularly appealing to debt investors who prefer predictable cash flows and are wary of interest rate risks.
While the immediate interest savings are clear, the long-term implications of these swap agreements on Hillman's interest expense should be closely examined. The fixed rate ensures certainty in financial planning, but it could also mean missed opportunities if interest rates fall below the swap rate. The balance between risk management and financial flexibility is a critical aspect for debt market analysts to consider when evaluating Hillman's financial instruments.
CINCINNATI, March 26, 2024 (GLOBE NEWSWIRE) -- Hillman Solutions Corp. (Nasdaq: HLMN) (the “Company” or “Hillman”), a leading provider of hardware products and merchandising solutions, successfully repriced its existing
The repricing reduces Hillman’s interest rate margin by 25 basis points to SOFR + 250 basis point and successfully removes the Credit Spread Adjustment (“CSA”) of 11 basis points, based on current leverage and elections.
The expected annualized interest savings are approximately
Rocky Kraft, Hillman’s chief financial officer commented: "The improved interest rate spread is a result of Hillman’s execution and improved financial position. Since the second quarter of 2022, we have reduced our net inventories by
Should Hillman’s first lien leverage ratio, as defined by Hillman’s Term Loan Credit Agreement, drop below 3.0 times, the interest rate margin will be reduced by another 25 basis points, to 225 basis points.
Following the company’s Q4 2023 results issued on February 22, 2024, S&P upgraded Hillman’s issuer credit rating to 'BB' from 'BB-' and maintained its ‘Stable’ outlook; while Moody’s affirmed Hillman’s ‘B1’ Corporate Family Rating and upgraded its outlook to ‘Stable’ from ‘Negative.’ During September 2023, Fitch affirmed its Long-Term Issuer Default Rating of ‘BB-’ Hillman and its ‘Stable’ outlook.
During December 2023, Hillman entered into new swap agreements fixing
About Hillman Solutions Corp.
Celebrating its 60th anniversary during 2024, Hillman Solutions Corp. (“Hillman”) and its subsidiaries are leading North American providers of complete hardware solutions. Hillman, which was founded in 1964 and headquartered in Cincinnati, Ohio, delivers complete hardware solutions with outstanding customer service to over 46,000 locations. Hillman designs innovative product and merchandising solutions for complex categories that deliver an outstanding customer experience to home improvement centers, mass merchants, national and regional hardware stores, pet supply stores, and OEM & industrial customers. Leveraging its leading distribution and sales network, Hillman delivers a “small business” experience with “big business” efficiency. For more information on Hillman, visit www.hillmangroup.com.
Forward Looking Statements
Statements made in this press release may be considered forward-looking statements and should not be relied upon as predictions of future events. Words such as "expect," "estimate," "project," "budget," "forecast," "anticipate," "intend," "plan," “target,” “goal,” "may," "will," "could," "should," "believes," "predicts," "potential," "continue," and similar expressions are intended to identify such forward-looking statements. These forward-looking statements include, without limitation, the Company’s expectations with respect to future performance. These forward-looking statements involve significant risks and uncertainties that could cause the actual results to differ materially from the expected results. Most of these factors are outside the Company's control and are difficult to predict. Factors that may cause such differences include, but are not limited to: (1) unfavorable economic conditions that may affect operations, financial condition and cash flows including spending on home renovation or construction projects, inflation, recessions, instability in the financial markets or credit markets; (2) increased supply chain costs, including raw materials, sourcing, transportation and energy; (3) the highly competitive nature of the markets that we serve; (4) the ability to continue to innovate with new products and services; (5) direct and indirect costs associated with the May 2023 ransomware attack, and our receipt of expected insurance receivables associated with that cyber security incident; (6) seasonality; (7) large customer concentration; (8) the ability to recruit and retain qualified employees; (9) the outcome of any legal proceedings that may be instituted against the Company; (10) adverse changes in currency exchange rates; or (11) regulatory changes and potential legislation that could adversely impact financial results. The foregoing list of factors is not exclusive, and readers should also refer to those risks that are included in the Company’s filings with the Securities and Exchange Commission (“SEC”), including its Annual Report on Form 10-K for the fiscal year ended December 30, 2023. Given these uncertainties, current or prospective investors are cautioned not to place undue reliance on any such forward looking statements.
Except as required by applicable law, the Company does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements in this communication to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based.
Contact
Michael Koehler
Vice President of Investor Relations & Treasury
513-826-5495
IR@hillmangroup.com
Source: Hillman Solutions Corp.
FAQ
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