Office Depot, Inc. on Tuesday announced that it has repriced its Term Loan Credit Agreement due 2022, which entails repaying about $194 million of the outstanding term loan and bringing the outstanding balance to $500 million.
The agreement will reduce the applicable interest rate margin by 175 basis points to LIBOR plus 525 basis points effective Nov. 21, according to a company press release. Along with the voluntary repayment, the reduction of applicable interest rate margin are both expected to net annual interest expense savings of about $21 million in 2019 and $79 million over the remaining life of the term loan (before transaction-related costs), the company also said.
Along with the debt restructuring, the retailer’s board of directors authorized a new stock repurchase program for up to $100 million of its outstanding common stock beginning Jan. 1.
Office Depot is buying itself some breathing room at a time when several retailers are hobbled in their turnaround efforts by massive debt loads.
The retailer's announcement of its loan payment comes as Moody's Investors Service upgraded its Corporate Family Rating to Ba3 from B1. "The upgrade reflects the company's prudent financial policy as it continues its transformation to a more business services oriented company and operating results that have exceeded Moody's projections with debt/EBITDA of 3.2 versus our estimate of 3.5x," Moody's analyst Peggy Holloway said in a statement emailed to Retail Dive on Monday.
That pivot is having mixed results in the near term. The company earlier this month said that third quarter sales rose 10% to $2.89 billion, as its business solutions sales rose 6% while its retail sales fell 6%. Within its new CompuCom IT business, acquired a year ago, revenues slid 4% to $268 million. Net income in the quarter fell to $60 million from $92 million in the year-ago quarter, as operating income in the quarter stayed flat at $105 million, despite the disappointing performance at CompuCom, the company also said.
But that's to be expected, according to Moody's. "While the CompuCom segment has contributed to top line, profit contribution is below expectation due in large part to lower business volume from the largest industrial client that is undergoing its own business restructuring as well as higher expense associated with onboarding new customers and other growth initiatives," Holloway said in her email, in which she also noted that the retailer is making necessary investments in e-commerce, the service platform, training and demand generation. "Office Depot has the financial flexibility to support its transformation."
"Improving sales trends in the Business Solutions Division has more than offset continued declines in the retail segment and the pace of decline in the retail segment is decelerating," she also said.