Premier Foods, the indebted maker of Mr Kipling cakes and Hovis bread, has secured a fresh agreement with lenders that extends its £1.2bn loan by two-and-a-half years and resets covenants.
The agreement follows months of tense negotiations and years of falling equity value. The share price, which peaked at nearly 300p in 2007 and closed on Monday up 4.3 per cent at 12p, has been shredded as debts mounted and its range of food products struggled to entice cash-strapped shoppers.
However, Monday’s announcement fell short of specifying the new interest rate and fee attached to its refinancing package. “We cannot disclose [this] because we have to finish all the formalities,” Premier Foods said.
Negotiations have been made harder by the sheer number of participants. The company has a roster of 28 lenders, led by part-nationalised Royal Bank of Scotland and Lloyds Bank. Premier Foods’ last refinancing in March 2009, which included a rescue rights issue, triggered a £25m fee to lenders.
The company, which has laboured under debts since acquiring Campbell’s UK soups business and rival RHM in 2006, has been paying an effective interest rate coupon of 7.9 per cent. Based on first-half numbers, it paid about £120m servicing debt last year.
Premier Foods accompanied news of its refinancing by reiterating that it expects overall financial results for last year, both reported and underlying, “to be at the lower end of market expectations”.
Despite this, news of the agreement cheered the market, sending the shares up 6.5 per cent to 12.25p and spurring Clive Black, an analyst at Shore Capital and a long-time bear, to switch his recommendation from “sell” to “hold”.
However, he added that “the devil is in the detail”, which will not be forthcoming until later this month, when the group also plans to release full-year results. He also pointed to the cautionary statement on earnings.
“You would not say management is saying: ‘Hey ho, we’re out of the woods’,” he said.
The consensus forecast for Premier’s earnings before interest, tax, depreciation and amortisation is £231m on turnover of £2.1bn, according to Bloomberg. That puts the food producer on a net debt/ebitda multiple of about five times.
Premier Foods last year won a grace period on covenant tests until March 31. The deferral came as it nudged up against covenants calling for net debt to ebitda to be no more than 3.9 times.
The company is further seeking to whittle down its debt pile by selling assets. Last year it sold three units. Currently on the block are Hartleys Jams and Middleton pickles division, which includes Sarson’s vinegar.
Middleton is expected to be valued at about £30m, based on estimated ebitda of about £4m-£5m, and a multiple of six times. Hartley’s, which makes jams and jellies and has a pedigree stretching back to 1871, is expected to be valued at £170m-£200m.
If realised, these sales could bring debt below £1bn, but would also prune ebitda.
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