Tuesday, December 1, 2009

Hawk retires debt, uses BIG words. (HWK)


Hawk Corp (HWK) announced that they've re-purchased about $10million of their 2014 notes, in private transactions. When your cost of debt is about 9%, I'd be retiring it as quickly as possible too.

I like the word "furtherance," so fancy!

"We have repurchased these bonds in furtherance of our strategy to prudently manage our balance sheet by opportunistically buying back debt at attractive rates, while maintaining flexibility to pursue acquisition opportunities, continue our stock buy-back program and support internal capital projects. With this debt repurchase, we expect to save approximately $0.6 million after-tax, or $0.07 per diluted share, on an annual basis, in reduced interest costs," said Ronald E. Weinberg, Hawk's Chairman and Chief Executive Officer.

Great move, as it'll save about $1million per year in interest and amortization expense. I'd note that these bonds are currently trading at just about Par value, with a yield of about 8.9%. The point being, Hawk probably will not be able to opportunistically issue new debt at more attractive yields. Rather, this is a de-leveraging of the balance sheet, in accordance with company strategy. Looking at the trading in the bonds recently, I'd bet the company was paying the higher prices (the low yesterday was 96cents on the dollar), but a nice move nonetheless.





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