Huntsman’s interest expense
Huntsman’s (HUN) interest expense in the first three-quarters of 2016 hovered between $50 million to $52 million per quarter. In the first nine months of 2016, Huntsman’s interest expense amounted to $152 million as compared to $158 million in the first nine months of 2015, which implies a decrease in interest expense by 3.8% on a year-over-year basis.
With Huntsman’s expected early debt payment of $260 million, its interest expense would come down. In 3Q16, Huntsman made an early debt payment of $200 million towards its term loan. As of September 30, 2016, the weighted average interest rate under the senior credit facilities (term loans) is around 4%. Assuming that Huntsman makes a $260 million payment towards its term loans, Huntsman will be saving $8 million to $10 million in interest payment per year. The impact will be visible from 1Q17 provided Huntsman doesn’t take any new loans.
Huntsman’s interest coverage
The interest coverage ratio tells how many times the company can make its interest payment with its EBIT (earnings before interests and taxes). At the end of the first nine months of 2016, Huntsman’s interest coverage ratio stood at ~2.8x while peers Dow Chemical (DOW), Eastman Chemical (EMN), and Westlake Chemical (WLK) had interest coverage ratios of 8.3x, 4.9x, and 13.0x, respectively. Though Huntsman’s interest coverage ratio is the lowest among its peers, it can still service its debt comfortably.
Investors can invest indirectly in Huntsman Chemical through the First Trust Materials AlphaDEX Fund (FXZ), which invests 2.2% of its portfolio in Huntsman as of December 30, 2016.