How Comfortable Is Chemours in Servicing Its Debt?
Chemours’ interest payments on debt
In the previous part of this series, we discussed where Chemours (CC) stands in its current debt position. In this part, we’ll look into the details of its interest payments.
The higher debt, the higher a company’s interest expenses. Since July 1, 2015, (when Chemours was spun off from DuPont [DD]) to the end of 2015, Chemours’ interest expense was $132 million. Its interest expense in 2016 rose to $213, accounting for the full year, as compared to fewer months in 2015.
Interested in TROX? Don't miss the next report.
Receive e-mail alerts for new research on TROX
Chemours has $1.4 billion variable interest rate debt. Now that the Fed has begun raising the interest rate ambitiously, Chemours’ interest expenses could go up. An addition of $500 million in debt would increase its interest expenses ~26.9 million annually.
In 2017, only half of its debt will be added to its interest expense, as its first interest payment on the bond won’t be until November 2017. The bond pays the interest semi-annually. With interest expenses on the rise, it will be important for investors to see if CC’s EBIT (earnings before interest and taxes) can cover its interest expenses.
Interest coverage ratio
The interest coverage ratio tells us how many times the company can make interest payments with its EBIT. The higher the multiple, the better it is for the company. At the end of 1Q17, CC’s interest coverage ratio stood at 4.40x. Peer Tronox (TROX) had an interest coverage ratio of 0.34x, while Kronos (KRO) had an interest coverage ratio of 11.20x. Chemours’ interest coverage ratio suggests that it can comfortably service its debt.
Investors can invest in the PowerShares DWA Momentum Portfolio (PDP) to hold Chemours indirectly. PDP had 1.5% of its total portfolio in Chemours as of June 22, 2017.
In the next part, we’ll look into the latest analyst ratings for Chemours.