Spectrum Brands looks to decrease debt through sale of home and garden business

By Jennifer Lanning Drey

Portland, Ore., Feb. 8 - Spectrum Brands Inc. is pursuing the sale of its home and garden business in an effort to reduce leverage and achieve more financial flexibility among its other businesses, chief executive officer David Jones said during a company conference call held Thursday.

Jones also said that one or more additional divestiture transactions are likely to be necessary in order to get the company's balance sheet and debt structure to a more comfortable position.

"The whole objective here is to get our leverage down from an uncomfortable level to a more comfortable level, ultimately allowing us to do more future investment in the remaining businesses," Jones said.

"We believe we can achieve a transaction that will significantly reduce the short-term pressure from our current leverage position."

Spectrum had $2.38 billion of outstanding debt and approximately $140 million available on its revolver at the end of the first quarter, according to chief financial officer Randall J. Stewart.

Depending on the timing of the home and garden sale and on other potential asset sales, Stewart said Spectrum will need to work with its bank group to obtain waivers for the second quarter and beyond in order to remain in compliance with its debt covenants.

He added that the company has already contacted its bankers regarding the matter and is "confident it will be resolved in the near term."

The company expects to close a sale of the home and garden business during the third quarter, Stewart said.

Spectrum's leverage ratio was 9.05 at the end of the first quarter, which is in compliance with the maximum allowable leverage ratio of 9.75 under the company's senior credit facility.

'Challenging' results ahead

During the call, the Spectrum executives warned that 2007 is likely to be a year of transition for Spectrum with "challenging" results in the next few quarters.

While the business is running more efficiently due to cost-cutting measures, Stewart said offsetting cost pressures, rising commodity prices and restructuring costs are among problems masking its progress.

"Spectrum Brands is a company in a state of transition and our financial results reflect that," he said.

However, Jones said 2008's results are likely to benefit from the successful execution of the company's current plans to grow sales and profitability.

Spectrum Brands is a consumer products company based in Atlanta.

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