Deal in Focus: Findus issues €200m PIK note for dividend payout

Despite multiple debt restructurings for Findus Group over the past five years, the company's owners – Lion Capital, JP Morgan and Highbridge Capital Management – have issued a junk-rated PIK note to fund a €200m dividend payout.

The controversial debt instrument has been given a CC-rating by Fitch, with an Issuer Default Rating of CCC.

"It's symptomatic of the market right now," says Gary Edwards of Investec. "There is the availability of liquidity with debt providers who are prepared to accept lower than expected yields for what may appear to be higher risk than normal market risk/reward parameters. Many will think that it is irrational, especially given the suggested rating."

Findus is issuing the note just two years after Lion's controlling stake was reduced by two thirds, in a debt restructuring deal that saw mezzanine holder JP Morgan and Highbridge inject £150m for a 50% stake in the company.

Similarly, in 2013 the group issued £410m of bonds to repay senior debt and refinance existing credit facilities.

Edwards believes it could be the case that investors picking up the note are doing so on the basis that there will be "some event: some equity event, some trade sale or disposal strategy. The thought process here could be that they don't expect to be hanging around for the duration of the loan notes on the same leverage model".

It is possible that Findus will be refinancing over the coming years, which in the current debt market could allow the group to negotiate more favourable terms, and make the PIK notes highly attractive in the process. A potential trade sale could have a similar effect, and five years on from its initial investment, it would be likely that Lion is starting to look at exit routes.

Bolt on, bolt off
Investec's Edwards suggests Findus could be a prime candidate for splitting up the business and selling off brands and divisions, which he says will raise cash, "improve the balance sheet and make the PIK notes look better value".

He draws parallels to Premier Foods, which has been selling off several brands and divisions, including Hovis, Sarsons and Branston, in an effort to deleverage.

Edwards notes that UK-based Findus has very strong brands, including two-century-old Young's Seafood, which could be valuable assets. "The food sector in general we like a lot, especially if it's got good brands," he says. "Frozen foods is a very, very solid sector. It didn't dip to any great degree during the crisis, so it's not volatile, it doesn't benefit or suffer from seasonality. It's a huge, heavy, very stable part of the food sector."

Opportunities for Findus are therefore strong, provided the company's leverage can be dealt with. "The underlying business can be relatively robust and have a good business model, it's just carting around lots of legacy leverage that's inappropriate for the company because of a historic deal that could be described as overpaid-for and over-leveraged," adds Edwards.

Lion's share
Lion bought Findus Group – then FoodVest – from CapVest for £1.1bn in 2008, at a time when prices were at a pre-crisis peak, and many deals were seen as overpriced and highly leveraged. JP Morgan underwrote a senior debt package of £550m for the deal, as well as a £60m revolving credit facility, and a £180m mezzanine facility.

Before the sale, CapVest had been growing FoodVest through bolt-ons. Most notably among these deals was the acquisition of Findus from EQT in 2006, for around SEK 5bn.

Though the 6,000-employee business is low-margin, it generated close to £1bn in revenue last year and remains one of the largest names in frozen foods in the UK and Scandinavia, even gaining market share this year.

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• Topics
• Consumer
• UK / Ireland
• Nordics
• Restructuring
• Deal in focus
• United Kingdom
• Lion Capital
• JP Morgan
• Sweden