Two major businesses in Winston-Salem, Hanesbrands Inc. and Hanes Mall owner CBL Properties, have announced drawing significantly from their respective lines of credit in response to the COVID-19 pandemic.
Kontoor Brands Inc., based in Greensboro with a major distribution center in Mocksville, took a similar step Thursday.
Hanesbrands, Forsyth County’s lone Fortune 500 company, accessed Wednesday $630 million from its U.S. revolving loan facility, giving it $1 billion of cash on hand.
Investopedia defines a revolving loan facility as “a form of credit issued by a financial institution that provides the borrower with the ability to draw down or withdraw, repay and withdraw again. A revolving loan is considered a flexible financing tool due to its repayment and re-borrowing accommodations.”
Meanwhile, CBL said Wednesday it is borrowing the final $280 million on a line of credit, giving it an outstanding balance at $681 million.
Kontoor said it has gained $475 million from its revolving line of credit "to increase financial flexibility, strengthen the company’s near-term cash position and provide additional funding for working capital."
"Kontoor continues to monitor the rapidly changing situation and has taken proactive actions, including reducing select operating and capital expenditures, strengthening liquidity, managing inventory and adjusting near-term supply chain capacity to better align with demand."
On Thursday, CBL confirmed it is closing Hanes Mall at 5 p.m. Friday in order to adhere to the shelter-in-place order made by Winston-Salem Mayor Allen Joines on Wednesday.
CBL is taking the same action with Friendly Shopping Center in Greensboro, which also is under a shelter-in-place order by its mayor. Many of the restaurants at the complex remain open for take-out or curbside services.
CBL had kept its shopping centers open even as some national peers, such as Simon Property Group, closed theirs temporarily last week.
“While their respective financial status may be different, the thinking among all of these companies is the same,” said Bowman Gray IV, a local independent stockbroker.
“They all want to have as much liquidity at their finger tips as possible to maintain operations until cash flow is restored.
“I do think that there may also be a need to access those credit facilities before the banks potentially reduce those credit lines as balance sheets deteriorate,” Gray said.
Tony Plath, a retired finance professor at UNC Charlotte, called CBL’s line of credit move “a gutsy, and quite risky, call for CBL to make right now.”
Plath said he is "a bit more sanguine" about Hanesbrands "is a larger, stronger company, has $1 billion in cash and a bunch of illiquid, and depreciating, commercial real estate assets."
Hanesbrands said its monetary decision “will provide the company with additional financial flexibility to manage its business with a safety-first emphasis during the unknown duration and impact of the COVID-19 outbreak.”
“The measures and precautions being taken by governments, retail partners and consumers in countries across the world to limit the spread of COVID-19 are having a significant impact on the economic activity in each region of the company’s global business.
“Hanesbrands continues to monitor and adjust its business plans as necessary, including taking actions to protect employees, manage liquidity, reduce expenses and serve customers and consumers.”
Plath said it is likely CBL will continue its recent strategy of selling more shopping center and other real-estate assets “once the economy regains its strength in 2021 to get out from under this additional debt burden sooner than 2023.”
CBL reported March 11 it gained a combined $185.7 million from selling several shopping center and other real-estate properties, including Cary Towne Center.
“Either that, or they’ll appeal to the federal government to restructure their debt as a federal grant,” Plath said.
The Federal Reserve has said it is an option in combating the virus’ devastating impact on the U.S. economy
“We’re gonna see a whole lot of this sort of appeal to the Fed in another year or two,” Plath said.
At least 27 Hanes Mall or outparcel tenants have closed their stores or shortened their operating hours in the past 10 days, including anchors Belk (tentatively closed until Monday) and J.C. Penney (closed until April 2).
“Over the past few weeks, CBL has made the safety of our employees, our customers, our tenants and the communities we serve our top priority,” Stephen Lebovitz, CBL’s chief executive, said in a statement.
“Given the difficulty of accurately predicting the financial and economic ramifications of the pandemic, we have taken immediate steps to preserve our liquidity position by drawing $280 million under our line of credit.
“This action serves to maximize our financial flexibility during this period of uncertainty.”
Hanesbrands, Kontoor and CBL withdrew their initial fiscal 2020 guidance, which for Hanesbrands excluded any initial impact from COVID-19.
Hanesbrands said it expects to provide more information when it reports first-quarter earnings in May.
Kontoor’s initial fiscal 2020 guidance on March 5 included a flat projection for revenue after adjusting for continuing restructuring changes that are expected to contribute to a year-over-year decline in the first half.
Fiscal 2020 adjusted earnings were projected in the range of $3.55 to $3.65, down from $3.84 in fiscal 2019.
Kontoor said it would provide more information on its first-quarter earnings call.
CBL already has been struggling financially in recent years as more consumers are spending their time and money shopping online than in malls and shopping centers.
On Feb. 6, CBL said it had received another notice of non-compliance with New York Stock Exchange listing criteria.
The criteria requires listed companies to maintain an average closing share price of at least $1 over a consecutive 30 trading-day period. It has six months to meet that requirement and will remain listed during that timeframe. CBL had just regained NYSE compliance Oct. 2.
The company said that to regain compliance, it may conduct a reverse stock split of its common stock if approved by its board of directors. CBL said in Monday’s proxy filing that it is considering reverse stock spits in the ratio of 1 to 5 up to a ratio of 1 to 25. Its 2020 shareholder meeting is set for May 7 in its hometown of Chattanooga, Tenn.
The share price closed Thursday down 0.8 cents to 29 cents. The 52-week share price range is 25 cents to $1.96.
In December, CBL suspended all future dividends on its common and preferred stocks through at least the end of fiscal 2020.