Premier Foods has announced a £1.1bn capital refinancing plan.
In a deal it described as “transformational”, the company is raising £353m through a share offer, £475m by the issue of bonds and £300m through a new revolving credit facility.
Announcing the business had also struck a “landmark” agreement over its pensions scheme burden, Premier CEO Gavin Darby said: “This new capital structure will liberate Premier Foods from its past and provides a great platform on which to execute our category-based strategy.”
The news comes just weeks after Premier split off its bread business, which includes the Hovis brand, as a separate joint venture with US company The Gores Group. Premier will receive a £28m cash injection from that deal.
“We are now focused on growing a high-quality branded grocery business, with its strong underlying cash flows,” said Darby, adding that he believed there were strong reasons to invest in the company. “Premier Foods is a high-quality, branded grocery business with strong EBITDA margins, operating cash flows and growth prospects.”
News of the refinancing came as Premier announced its full-year results, reporting operational profit down 12.3% year-on-year to £139.5m on revenues down 20.1% to £856.2m. Sales of its grocery power brands rose 2% year-on-year to £543.5m, and underlying profit rose 17.7% to £145.2m
Premier said it had enjoyed particularly strong performances in ambient desserts and flavourings and seasonings, boosted by a TV push for Ambrosia and the launch of Devon Dream. Bisto and Oxo also performed well, following the launch of Oxo Shake & Flavour and Bisto Stock Melts.
Admitting overall sales of Mr Kilping fell in 2013, Premier said its snack packs had performed well, and that it was investing £20m to increase production of the format.
Details of the refinancing:
Premier is raising about £353m through the fully underwritten placing of approximately 77 million shares at 130p per share to raise £100m, and a fully underwritten eight for five rights issue of approximately 507 million shares at 50p per share to raise £253m. The company said this would reduce its debt burden and strengthen its balance sheet.
The company said that, to diversify its sources of finance, it is aiming to raise £475m of senior secured notes. It added that this would “extend the maturity of this tranche of the group’s debt by up to seven years and bring in a new and diversified investor base”.
Revolving Credit Facility and Securitisation Facility
Premier will repay its existing term loan and revolving credit facilities when it completes the recapitalisation, and replace them with the senior secured notes and a revolving credit facility of £300m, which is due to mature in March 2019 and attracts an initial bank margin of 3.50% above LIBOR. Premier has agreed with the lenders of the new revolving credit facility that it can distribute dividends to shareholders when the group’s net debt/EBITDA ratio falls below a ratio of 3.0x. This facility has been arranged with a smaller group of lenders.
Premier said it had agreed what it considers to be a “comprehensive and significant agreement” with its pension scheme trustees. Following the capital restructuring, the pension deficit contribution schedule will be revised, which the company said would reduce cash payments compared with the previous schedule by £161m over the next six years. The company’s deficit contributions will be fixed until December 2019.