Revlon Inc. was upgraded today by S&P Global Ratings to CCC-, from Selective Default, following the conclusion of a distressed exchange offer for its 5.75% senior notes due 2021, and the funding of the redemption of the unexchanged balance of the notes at par. Ratings also affirmed the C rating on Revlon's senior unsecured notes, while raising the company's $915 million Brandco new money term loan to CCC, from CCC-, and its roll-up term loans and legacy term loan to CC, from C. The new Brandco second-lien term loan was assigned a CC rating.
S&P Global Ratings said it continues to consider Revlon's capital structure as "unsustainable," and characterizes its liquidity as "weak." The ratings agency noted that the exchange offer and redemption required $185 million to $190 million to complete, leaving the company with an estimated $82 million in cash and $53 million in an asset-based lending, or ABL, revolving credit facility at Sept. 30, pro forma for the bond transaction. While Ratings anticipates 2020's fourth quarter will be cash flow positive, it anticipates Revlon will lose money in the next three quarters.
Ratings said Revlon has $292 million, pro forma, in borrowings under tranche A of its domestic ABL maturing in September 2021, and it projects the company will have insufficient cash on hand to repay the loan. Ratings believes the company is currently negotiating with lenders regarding renewing the revolving facility.
The ratings agency said that the company's operations have "been on the decline since 2016," and at an increased negative pace in 2020 as a result of the pandemic. Ratings believes the company's beauty products portfolio, which is "skewed toward color cosmetics and fragrances," has been particularly hurt by the move toward working from home, resulting in Revlon's leverage, pro forma for the transaction, being in excess of 20x. Ratings projects leverage will remain in double-digits over the next two years.
Revlon develops, manufactures, markets, distributes and sells beauty and personal care products worldwide. It is majority-owned by MacAndrews & Forbes.