This excerpt taken from the HBI 10-K filed Sep 28, 2006.
We incurred substantial indebtedness in connection with the spin off, which subjects us to various restrictions and could decrease our profitability and otherwise adversely affect our business.
We incurred substantial indebtedness of $2.6 billion in connection with the spin off as described in Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources. We are subject to significant financial and operating restrictions contained in the credit facilities governing our indebtedness. These restrictions affect, and in some cases significantly limit or prohibit, among other things, our ability to:
In addition, our credit facilities require us to maintain financial ratios. If we fail to comply with the covenant restrictions contained in these credit facilities, that failure could result in a default that accelerates the maturity of the indebtedness under such facilities.
Our substantial leverage also could put us at a significant competitive disadvantage compared to our competitors which are less leveraged. These competitors could have greater financial flexibility to pursue strategic acquisitions, secure additional financing for their operations by incurring additional debt, expend capital to expand their manufacturing and production operations to lower-cost areas and apply pricing pressure on us. In addition, because many of our customers rely on us to fulfill a substantial portion of their apparel essentials demand, any concern these customers may have regarding our financial condition may cause them to reduce the amount of products they purchase from us. Our substantial leverage could also impede our ability to withstand downturns in our industry or the economy in general.