Revlon Plummets in Bond Trading

Faced with a debt-laden balance sheet, diminishing revenues and fierce competition in the retail market, Revlon Inc. is facing some tough problems and has seen its outstanding securities get punished severely by investors.

On Friday, the company announced it would pursue the sale of its worldwide Professional Products business and its non-core Latin American assets as well as accelerate the reduction if U.S. retailers' warehouse inventory levels. Company officials acknowledged both third and fourth quarter results would be adversely affected and suggested the company may not be in compliance with some of the financial covenants under its existing credit agreements.

Bond trading fell on the news. The 10.75% senior discount notes, due 2001, were trading at 16 on Thursday, Oct. 7, down from 54.50 a week earlier, according to CIBC World Markets. The 8.625% senior subordinated notes, due 2008, were trading at 46 on Oct. 7, down from 82.38 the previous week.

Immediately following the announcement, Standard and Poor's revised its rating of the company's outstanding debt to "negative" from "developing" on its CreditWatch. Moody's Investors Service also downgraded Revlon's bonds. Revlon has $2.4 billion in outstanding debt, including $1.75 billion of debt at the Consumer Products level.

"Selling these pieces makes imminent sense," said Eric Stephenson, director at Fitch IBCA. "They're a niche segment that could win a premium for Revlon. Still, I think Revlon is probably going to have to sell of more than $500 million in assets - they need to sell $200 million to $300 million more to get their leverage back down to where it needs to be."