Premier Foods could be forced to sell its marquee brand Hovis to climb out of its current debt problems, City experts have claimed.

Rumours that the UK's second-biggest bread brand could be up for sale continued to do the rounds this week as the City digested Premier Foods' efforts to simplify its debt.

On Tuesday, Premier Foods ­revealed plans to ­further whittle down its £1.35bn debt pile by ending exposure to risky derivative ­contracts linked to interest rate movements. It will pay £167m between now and 2013 to end interest swap arrangements and reduce risk and volatility on its balance sheet. Some contracts in its portfolio were unhedged against interest rate movements and could have cost the company up to £450m.

"The new plan, together with changes to its pension schemes announced in August, achieves substantial progress towards the de-risking objective of our financial strategy and opens the way to diversifying sources of funding," said Premier Foods' chief financial officer Jim Smart.

But one leading mergers and acquisitions ­expert told The Grocer the measures did not go far enough and suggested more extreme ways of ­raising funds were necessary.

Hovis would cut Premier Foods' debt significantly, he said. However, rising commodity prices and stiff competition in the bread market would make it ­difficult to get maximum value for the business, he added.

Other Premier grocery brands such as Ambrosia and Loyd Grossman were strong, but not sufficiently "knock-out" to structurally dent the debt if they were sold.

Meanwhile, there were also warnings that CEO Robert Schofield's leadership could become untenable if volumes and margins came under further pressure.

"He and the chairman were responsible for the ­acquisition strategy. The chairman has gone, so if there's any sign of any operational issues, slips or challenges, then he is on the line," said one analyst.

Read more
Premier to fork out £167m after debt deals go bad (19 October 2010)
Is Quorn still cool enough to help rescue Premier Foods? (analysis; 9 October 2010)
Premier ponders £250m Quorn sale to ease debt burden (4 October 2010)