Cosmetics owner Coty runs ‘refinancing risk’, experts warn

Sale of 50 million shares owned by KKR Rainbow Aggregator will improve the conglomerate’s capital structure

Cosmetics conglomerate and brand owner Coty is taking refinancing risks over the next 12 months due to upcoming maturities, experts have warned.

S&P Global – a leading capital and commodities specialist – said that the refinancing of Coty’s 2023 maturities, which include US$2.1bn of remaining revolving credit facility, $114m outstanding balance on the term loan A and €550m unsecured euro notes, are “essential” in order to turn around its operations.

Coty, however, has refinanced $1.7bn of its outstanding term loan A balances, scheduled to mature in 2023, with new senior secured notes that will mature in 2026, and extending $700m of its revolving commitment to 2025.

Meanwhile, the Marc Jacobs licensor’s recent announcement of a proposed secondary offering of Class A common stock by KKR Rainbow Aggregator of 50 million shares will improve its capital structure, said the authority.

The move will see KKR’s shares open up to the public at a price of $8.53.

“In our view, this transaction improves the sustainability of the company’s capital structure and results in our measure of Coty’s pro forma consolidated leverage for fiscal 2021, declining from 11x to 10.5x,” wrote S&P Global.

KKR and Coty have previously done business in the form of a $4.3bn deal in which the private equity firm bought out 60% of its Wella, Clairol, OPI and ghd brands.

In terms of profitability, Coty is emerging from the pandemic with healthier looking balance sheets.

For Q4, ended 30 June, revenues were up like-for-like 80% on 2020, with net revenues at $1.06bn for the three month period.

The US and China were standout markets for year-on-year growth throughout the quarter with the former increasing 67%, and 6% for fiscal year 2021.

Meanwhile China, a market Coty has specifically targeted, saw double-digit growth.

EMEA also showed signs of recovery with sales more than doubling for the quarter, despite many countries remaining under restrictions.

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