Revlon Bonds, Term Loan Tumble on Disappointing 3Q Results

Revlon’s unsecured bonds and term loan were falling sharply in early trading Friday—finding new lows and edging into distressed territory—after the issuer reported its third-quarter results, revealing adjusted EBITDA that barely reached the halfway mark to analyst forecasts.

The New York beauty and personal care products company on a conference call with analysts this morning acknowledged weak U.S. sales trends, while also trying to refocus the outlook on the potential benefits of Revlon’s continued integration with Elizabeth Arden.

The issuer’s 5.75% notes due 2021 were down roughly 7.5 points, to a new low of 79.25, according to MarketAxess. The 2021 notes changed hands at 89 handles over the first two weeks of October, and traded at 90.875 in the middle of August. Revlon 6.25% notes due 2024 were also trading briskly in blocks on either side of 67, also a new low, or down 6.875 points on the day and 8.75 points week to week. The notes traded north of 80 as recently as Sept. 12, trade data show.

Meanwhile, Revlon’s B term loan due September 2023 (L+325, 0.75% LIBOR floor) was quoted at 81.5/83.5 and 81.75/84.75 this morning, down from mid-80s yesterday, sources said. As of Sept. 30, there was $1.738 billion outstanding on the loan, according to SEC filings. Revlon shares (NYSE: REV) were down roughly 9.8% to $20.20 in morning trading.

The company reported adjusted EBITDA for the quarter of $53.6 million, roughly 49% below analyst estimates, while sales of $666.5 million were up 10.2% year-on-year, primarily driven by the Elizabeth Arden acquisition, but down 10.5% on a pro forma basis, largely due to weakness in the company’s North America mass retail channel.

“The declines in the U.S. can be attributed to the continued migration of consumers to specialty beauty retailer, online purchasing, store closures, inventory reductions among several mass retail partners, incremental adjustments to return and markdowns and inventory rebalancing with select salon distributors,” Revlon CEO Fabian Garcia said on the conference call, noting that sales were further hampered by disruptions in Florida and Texas related to hurricanes.

Garcia emphasized that Revlon expects to generate $190 million over the next several years in synergies through its acquisition of Elizabeth Arden, which was completed in September last year, representing a $50 million increase over initial cost savings projections.

Revlon CFO Christopher Peterson said it was unlikely that the company would need to tap debt markets again in the near-term, given what the company views as a relatively strong liquidity position, despite a reduction in cash on hand to $79.2 million at Sept. 30, from $99.2 million a year earlier. Peterson said the company is in a favorable position to repatriate its international balance sheet cash without incurring a tax liability.

“So we’re very comfortable with our liquidity position and don’t foresee any need to go to market and do anything differently,” he added.

Revlon last tapped the debt markets in July 2016, with its B term loan, then totaling $1.8 billion, alongside the $450 million of 6.25% unsecured notes due 2024, with proceeds backing a refinancing and the acquisition of Elizabeth Arden.

Revlon is a New York-based manufacturer and marketer of beauty and personal care products worldwide. — James Passeri/Kelsey Butler

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