At the end of 2017, Olin (OLN) reported debt of ~$3.6 billion. This debt includes long-term debt and the current installments of long-term debt. Olin’s debt has multiplied by approximately five times since 2012.
Olin’s debt increased in 2015 due to the acquisition of the U.S. Chlor Alkali and Vinyl, Global Chlorinated Organics, and Global Epoxy businesses from The Dow Chemical Company (DOW).
Since 2012, Olin’s debt has shown a declining trend. In January 2018, Olin raised $550.0 million to pay its term loan credit facility. As a result, its debt levels are expected to remain about the same until OLN decides to repay some portion of its debt. The new debt raised by Olin is expected to mature in 2030.
Olin’s debt-to-equity stance
The debt-to-equity ratio indicates the proportion of debt that is being used to finance the company’s assets. At the end of 4Q17, OLN’s debt-to-equity ratio stood at 1.3x. Its peers Westlake Chemicals (WLK), LyondellBasell (LYB), and Celanese (CE) have debt-to-equity ratios of 0.8x, 0.96x, and ~1.3x, respectively.
Olin’s debt-to-equity ratio is higher than its peers as well as the industry average of ~1.1x. The higher debt could have an adverse impact on net income as its interest expense would be high.
Can Olin’s free cash flow help reduce its debt?
Olin (OLN) has been generating positive free cash flow for several years. However, its free cash flow has not been consistent with its numbers.
In the past two years, Olin has generated free cash flow of $300.0 million each year. However, ~40.0% of its free cash flow is utilized to pay dividends, and the remaining percentage isn’t substantial enough to clear the debt.
Investors can hold Olin indirectly by investing in the Guggenheim S&P Global Water Index ETF (CGW), which invested ~2.3% of its portfolio in Olin on March 19, 2018.
In the next part, we’ll look into Olin’s ability to service its debt.