Eastman Chemical’s interest expense
In 2017, Eastman Chemical had interest expenses of $241 million, a decline of 5.5% on a YoY (year-over-year) basis. The decrease in EMN’s interest expense was primarily due to the refinancing of certain public debt and repayment of the term loan in 2017. As EMN’s debt has fallen, EMN’s interest expense has correspondingly decreased.
EMN’s interest expense is expected to decline in 2018, as EMN has to repay debt of $393 million. EMN might also consider refinancing some of its notes that carry higher coupon rates. However, some of EMN’s notes are euro-denominated and are subject to exchange rate risk, so the interest rates on these bonds could fluctuate. Also, EMN has $589 million in debt with variable interest rates, which could mean that the company’s interest expenses rise due to the continued Fed rate hikes.
Interest coverage ratio
The interest coverage ratio tells us how comfortable a company is in servicing its debt. The ratio is calculated by dividing a company’s EBIT (earnings before interest and tax) by its interest expense. The higher the multiple, the better the company’s position.
At the end of 2017, EMN’s interest coverage ratio stood at 6.4x as compared to the industry average of 5.9x. Its peers Westlake Chemical (WLK), Olin (OLN), and LyondellBasell (LYB) have interest coverage ratios of 7.9x, 1.7x, and 11.1x, respectively.
Investors can indirectly hold LYB by investing in the PowerShares Dynamic Market Portfolio (PWC), which invests 2.9% of its portfolio in EMN as of March 29, 2018.