The $150 million institutional piece of Flowers Foods blew out last week and the same is expected for similar deals hitting the market now that food has become the sector du jour. Buysiders continue to balance out their telecom exposure and the food sector is making a turnaround as investors define it as a defensive credit and reconsider the strength of the industry as a whole.
"Food deals were not performing this well just six months ago," said one buysider, noting that food credits struggled in the market over the past year as fund managers were looking to bulk up on telecom and were critical of the food industry's debt management and expenses. "Companies made too many acquisitions, putting a lot of debt on the balance sheet and they couldn't service it," said one buysider, noting that many of these companies have since paid down debt, begun to manage expenses more efficiently, and improved accounting practices.
Last week, the "B" tranche of Deutsche Bank's Flowers Foods deal blew out and closed the day it launched with reportedly $300 million available in commitments. Buysiders pointed to the business' strong cash flow, 3.3x total leverage, and scheduled amortization of debt for the next six years as selling points. Other deals on the way include UBS Warburg and CIBC World Markets' $450 million deal for International Multifoods, reportedly launching on May 3, and First Union and BANK ONE's $2.6 billion for Suiza Foods with a bank meeting reportedly scheduled in two weeks. Both of these deals have been touted for strong cash flow, ratings, and pricing. Suiza's $750 million, seven-year term loan "B" is expected to price at LIBOR plus 3% and International Multifoods' $200 million, six-and-a-half year term loan "B" is expected to price at LIBOR plus 33/4 %. A company official at Flowers declined to comment. Company officials at Multifoods, and Suzia did not return calls by press time.
As always, structure is key. "The bottom line on a deal is what rights do the sub debt have vis a vis our debt," said one manager. He noted that in addition to the subordinated debt's position at the corporate level, pay down schedules are important too. "We like to know the "A" will be paid off so there's less debt competing with us for collateral," he said. Concerns specific to certain businesses within the sector can also raise eyebrows, according to some buysiders taking their first glance at the $740 million refinance deal for Del Monte Corp. Buysiders noted that the company's inventory de-stocking issues with retailers could make some hesitate. Bankers, however, expect to get the deal done so easily many have said Bank of America won't even go to general syndication as most banks and investors already on the credit seem eager to rollover their positions for the $325 million revolver priced at LIBOR plus 23/4 % and the $415 million term "B" priced at LIBOR plus 31/4 %. Company officials did not return calls.