Aurora Foods has obtained an extra $37.6 million loan from its J.P. Morgan-led bank group, made covenant changes to its existing credit agreement and received $25 million from its sponsors as the St. Louis company looks to reduce more than $1.2 billion in debt. "In the short term, debt increases," said William McManaman, cfo. "But to de-lever, we need to gain liquidity to keep suppliers and vendors current and to run the business the way it should be." Merrill Lynch is advising on potential de-leveraging options, which include an asset sale, an equity offering and the conversion of debt to equity.
The new loan is tacked onto a $175 million revolver, which is fully drawn, and $462 million in term loans, McManaman noted. "Liquidity was tight, and we needed to untighten it," he said. Terms of the new loan are identical to that of the "B" loan, he added, declining to comment on the pricing.
The $25 million infusion from sponsors Fenway Partners and McCown De Leeuw & Co. is in the form of unsecured promissory notes with an interest rate of 12%. The investors also will receive warrants to purchase Aurora stock. Furthermore, the new investment cancels a $10 million commitment by the sponsors to participate in the bank loan.
Commenting on the reasons for the debt load and liquidity crisis, McManaman cited acquisitions made at high prices in the past. In addition to the bank debt, Aurora has more than $400 million in notes outstanding that are trading in the 70s, he noted. Debt levels are running at almost seven times EBITDA, and Moody's Investors Service downgraded the sub notes last month to Caa3 from Caa1 on the expectation of lower cash flow than previously anticipated this year. However, Moody's believes the senior debt is covered by collateral.