On the verge of violating its debt covenants in early November 2022, Hanesbrands (HBI) renegotiated the terms of its Senior Secured Credit Facility. The new terms go into effect in the current quarter and continue through December 30, 2023. Until then, lenders will not allow Hanesbrands to pay out more than $250 million in dividends.

This strikes us as extraordinarily lenient.

Hanesbrands hasn’t paid a dividend of that size in at least three years. The company has paid dividends totaling $209, $210, and $216 million in each of the last three years. Therefore, it doesn’t appear Hanesbrands gave up much in return for the new terms, including the following:

— Leverage ratio from 4.50 to 1.00 to 5.25 to 1.00 for the quarter ended December 31, 2022, 5.75 to 1.00 for the quarters ending April 1, 2023 through September 30, 2023 and 5.25 to 1.00 for the quarter ending December 30, 2023 reverting back to 4.50 to 1.00 for each quarter after the Covenant Relief Period

Hanesbrands thinks it can remain compliant with the new terms for a year unless, as the company says, it misses its internal operating cash flow estimates.

If that occurs— and lenders don’t provide additional relief— Hanesbrands warned lenders it may never repay them.