Chemours’s interest expense
Chemours’s (CC) interest expense has remained steady for the past two years. In 2016, CC incurred an interest expense of $213 million, and in 2017, it was $215 million. As CC’s unsecured notes carry a higher coupon rate, its interest expense has remained high. However, the situation is expected to improve.
The refinancing of the higher coupon rate with the issuance of 450 million euros in 4% senior notes due in 2026 could help Chemours bring down its interest expense. With the expected redemption of up to $250 million in 6.6% senior notes due in 2023 and the redemption of 295 million euros in senior notes carrying a 6.1% coupon rate, it’s estimated that Chemours’s interest expense could come down by $10 million–$13 million per year. The interest rate reduction could also improve its interest coverage ratio, provided that its EBIT (earnings before interest and tax) remains stable or grows.
Interest coverage ratio
Investors should know how comfortably a company can service its debt, which is indicated by its interest coverage ratio—its EBIT divided by its interest expense. The higher the multiple, the better it is for the company.
Chemours’s interest coverage ratio has improved significantly, rising from 1.7x in 2015 to 7.2x at the end of the first quarter, on par with the industry standard. The increase was primarily due to growth in CC’s EBIT. With its interest expense expected to come down, CC’s interest coverage ratio could improve. In comparison, peers Tronox (TROX), Kronos Worldwide (KRO), and Sherwin-Williams (SHW) have interest coverage ratios of 0.8x, 23.4x, 18.0x, respectively. Investors can hold Chemours indirectly through the PowerShares S&P Spin-Off Portfolio ETF (CSD), which had invested 3.6% of its portfolio in Chemours as of May 25.