Omnova cuts leverage to 3.5 times at 2Q end, aided by cash generation and earnings

By Paul Deckelman

New York, June 29 – Omnova Solutions, Inc. made progress during the recently ended 2016 fiscal second quarter in reducing its debt leverage, company executives said on Wednesday.

“Continued improvement in cash generation and earnings growth drove ongoing improvement in net leverage,” the Fairlawn, Ohio-based specialty chemical manufacturer’s chairman, chief executive officer and president, Kevin M. McMullen, said in news release announcing the results for the quarter ended May 31.

McMullen said that cash provided from operations was $21.1 million for the quarter and $19.4 million year to date, compared to $17.9 million and $10.5 million, respectively, last year.

The company’s senior vice president and chief financial officer, Paul F. De Santis, told analysts on the company’s conference call following the release of the results that Omnova’s trailing 12-month adjusted EBITDA reached $83.7 million at the end of the quarter, up from $75.5 million at last year’s second-quarter end.

“As a result of the increased profits and improved cash generation, adjusted leverage [measuring net debt as a multiple of 12-month adjusted EBITDA] was 3.5 times, compared to 4.2 times at the end of last year’s second quarter.”

McMullen said in the news release that the latest leverage figure had also improved from 3.8 times at the end of the 2016 fiscal first quarter on Feb. 29.

According to the company’s results, Omnova was carrying just under $356 million of debt on its balance sheet at the end of the quarter, essentially unchanged from the end of the first quarter and from the end of its 2015 fiscal year on Nov. 30.

Its capital structure included $150 million of 7 7/8% senior notes due 2018. Last November, the company redeemed $50 million of those notes at 101.969 plus accrued interest.

It also had outstanding $203.1 million of other long-term debt, mostly consisting of about $190 million of term loan B bank debt due 2018, accruing interest at 300 basis points over Libor with a 1.25% Libor floor, as well as small amounts of other long-term debt. The company’s balance sheet also showed around $2.5 million of short-term debt due its banks.

It had $60.6 million of cash and equivalents at the end of the second quarter, up from $44 million at the end of the first quarter and $44.9 million at the end of fiscal 2015.

According to the company’s most recent investor presentation, its total liquidity at the end of the first quarter – the most recent quarter calculated – stood at $107 million. Besides its $44 million of cash, Omnova also had $63 million of borrowing availability under its revolving credit facility, with no borrowings or letters of credit outstanding.

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