Olin repaid $415 million of debt in ‘16, eyes 3-to-3.2x leverage ratio

By Paul Deckelman

New York, Feb. 1 – Olin Corp. repaid some $415 million of debt in 2016 and anticipates continued debt reduction this year.

The Clayton, Mo.-based chemical company and firearms ammunition manufacturer’s vice president and chief financial officer, Todd A. Slater, told analysts on a Wednesday conference call following the release of its results for the 2016 fourth quarter and full fiscal year ended Dec. 31 that “our expectation is that by the end of 2017, a combination of debt reduction and EBITDA growth will reduce the net debt-to-EBITDA leverage ratio to the range of 3 to 3.2 times.”

Slater said that the company expects to generate $295 million of free cash flow in 2017, after having made a $210 million investment in its ethylene processing facilities at mid-year, although he said that after the company pays its normal quarterly dividends to its stockholders, totaling some $132 million over the course of the year, it expects to have a final free cash flow figure of $163 million.

During the question-and-answer portion of the conference call, an analyst noted that 2017 will mark the two-year anniversary of Olin’s more than $5 billion cash-and-stock acquisition of certain chemical assets from the Dow Chemical Co, a transaction that closed in October of 2015.

He said that Olin has the option to buy back shares after that – but wanted to know whether debt reduction will “likely still be the priority for a while longer?”

Olin’s president and chief executive officer, John E. Fischer, answered in the affirmative, telling the questioner that “we're comfortable at a lot lower debt-to-EBITDA ratio than we are currently running.”

Lower debt balance

As of Dec. 31, Olin’s balance sheet showed total debt of some $3.617 billion, consisting of $3.537 billion of long-term debt less portion and $80.3 million of current portion debt.

The total debt figure was down sequentially from $3.678 billion at the end of the 2016 third quarter on Sept. 30, consisting of $3.598 billion of long-term debt less current portion and $80.3 million of current-portion debt.

And it was down further still from some $3.849 billion of total debt at Dec. 31, 2015, consisting of $3.644 billion of long-term debt less current portion and $205 million of current portion debt.

The company said that it repaid approximately $205 million of maturing debt in 2016, using available cash, and also repaid $210 million of term-loan debt using funding from a new accounts receivable securitization program. During 2017, Olin has maturing debt of $79.7 million.

Slater said on the conference call that “we have approximately 60% variable rate debt in our debt profile, and we're forecasting 2017 interest rates will be higher than those we experienced in 2016,” leading to estimated interest expense this year of about $205 million..

Besides that variable-rate debt, Olin’s capital structure also includes $1.57 billion of junk bond debt – $720 million of 9¾% senior notes due 2023 and $500 million of 10% senior notes due 2025, issued in September 2015 as part of the financing for the Dow Chemical assets acquisition, as well as $200 million 5½% senior notes due 2022 the company sold in August 2012 and $150 million of 8 7/8% notes due 2019 that it sold back in August 2009.

The company’s balance of cash and equivalents at Dec. 31 was $184.5 million – up sequentially from $127 million at the end of the third quarter, though down from $392 million a year earlier.

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