Chiquita plans $225 million 10-year note issue

By Paul Deckelman

New York, June 8 - Chiquita Brands International Inc. is expected to sell $225 million of 10-year senior unsecured notes, high-yield primary market sources said Wednesday.

The timing of the prospective deal and the investment banks involved as underwriters have not been announced, with a company official citing the legal confidentiality restrictions associated with Rule 144A bond offerings. Investment banking sources also had no information immediately available.

Market speculation, however, points toward possible involvement by Wachovia Securities and Morgan Stanley, who are the joint lead arrangers and joint bookrunners on Chiquita's new $600 million bank financing package, the details of which surfaced Tuesday.

Goldman Sachs is also involved in the bank deal, as documentation agent. The new credit facility was scheduled to be launched Wednesday following an afternoon bank meeting.

The prospective bond issue is closely linked structurally to the new senior secured bank credit facility. Proceeds of the two financings will be used to help fund Chiquita's pending $855 million cash acquisition of the Fresh Express unit of Performance Food Group Co.

Under the terms of the complex financing arrangements, the proceeds from the prospective senior note offering would be used to reduce the size of the planned term loan B portion of the bank facility by $75 million to $300 million, from the originally planned $375 million. That would bring the total size of the bank facility down to the $600 million level while being shopped to potential lenders from $675 million, the maximum amount to which the underwriting syndicate had committed via an amended commitment letter the company entered into mid-May.

Proceeds from the note deal would also go to replace a $150 million term loan C2, secured by the Fresh Express assets. That loan, separate from and outside the main $600 million bank financing structure, would be available to Chiquita should it be unable to complete the bond sale for any reason.

Moody's Investors Service on Wednesday assigned a B3 rating to the prospective $225 million bond issue and affirmed the B3 rating on the Cincinnati-based banana and other fresh produce importer's existing $250 million of 7½% senior unsecured notes due 2014, assigned a B1 rating to the new bank credit facility and affirmed the company's senior implied rating at B2, with all ratings considered stable.

In rating the planned new notes at B3, well below the bank debt, Moody's observed that they are in a structurally subordinated position in the company's capital structure. The ratings agency pointed out that the notes "are at the holding company (CBII), with no upstream guarantees."

"The planned new note issue will have some increased indenture flexibility compared with the existing notes. Asset coverage of the notes at par would require realization of a significant amount of intangible value on Chiquita's pro forma balance sheet," Moody's concluded.

Sara Rosenberg contributed to this article.

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