Dan River secures new financing

By Don Hogsett -- Home Textiles Today, 3/24/2003 12:00:00 AM

DANVILLE, VA —

Moving on to a firmer financial footing, Dan River Inc. has completed the first step of a proposed refinancing that would ease pressure on the company's cash flow and buy it time and breathing room in an increasingly competitive textiles environment.

In the first phase of a two-part plan that could be vital to its operating smoothly in an increasingly harsh environment, Dan River has cut a deal for $200 million in new bank financing.

Next up, Dan River hopes to raise cash through a new $150 million bond issue. Company officials hit the road soon trying to drum up interest from investors grown skeptical about a domestic textiles industry battered by foreign imports, roiled by turmoil, weighed down by crushing debt loads, and often bleeding red ink.

Putting together the proceeds from the new bank financing and the bond sale, Dan River plans to pay down a debt load that totaled $252 million at the end of the year, hopefully at lower interest rates, and have enough cash left over to provide stability, invest in its future growth and create a rainy-day cushion.

Dan River has about $239 million in debt that's coming due later this year, about $120 in bonds due Dec. 15, and another $119 due on Sept. 30 on its bank debt. The refinancing would hopefully reduce the interest payments on the company's bonds, now 10.125 percent, and push the maturity out to 2009, taking a monkey off its back and removing a rapidly approaching deadline.

The move was cheered by two of the nation's biggest debt rating agencies, Standard & Poor's and Moody's, which said they're likely to upgrade the company's credit rating as a result. An equally encouraged Wall Street pushed Dan River stock up by almost six percent in value, or 19 cents, to $3.50 a share.

Standard & Poor's said that with the launch of the proposed refinancing, it's reviewing Dan River's 'B-' corporate long-term credit rating and its 'CCC' bond ratings, and will raise the corporate rating to 'B+' once the deal is put to bed.

S&P said the potential upgrade reflects its expectation "that the refinancing will allow Dan River to sustain its improved 2002 financial performance. "The outlook on the company, upon completion of the transactions, will be stable, reflecting Standard & Poor's expectation that Dan River can maintain its current credit protection measures and operating performance in the intermediate term," said S&P analyst Susan Ding.

Moody's Investors service said that once the deal is done it's prepared to upgrade the company's long-term bank debt to a B2 rating and its unsecured debt to B3, citing Dan River's "strong market positions in home fashion and apparel fabrics markets and significant improvement sin operations as evidenced by better working capital management and increased asset utilization in 2002." But every silver lining comes trailing a cloud, and in this case Moody's pointed to concern about the company's sales concentration with Kmart — about 19 percent in 2002.

Moody's said the refinancing "will significantly improve Dan River's near-term liquidity by eliminating all current maturities of long-term debt, and will better position the company for future growth. Further, Moody's recognizes management's efforts and success in returning the company's margins and cash generation to more normalized levels in 2002 after a difficult 2001."