Pinnacle's term loan commitments still short by $120 million ahead of Wednesday's deadline

By Sara Rosenberg

New York, Nov. 18 - With the Wednesday commitment deadline looming, some are curious as to what is going to happen to the Pinnacle Foods Corp. deal, which has not yet reached subscription on the term loans. In fact, as of late Tuesday there were only $450 million of commitments received for the $570 million institutional piece, according to a fund manager.

The credit facility consists of a $170 million term loan B that will be used to help support the acquisition of Pinnacle Foods by JPMorgan Partners, in partnership with C. Dean Metropoulos, from Hicks, Muse, Tate & Furst Inc., a $400 million delayed draw term loan that will be used to help finance the Aurora Foods Inc. acquisition and a $130 million revolver.

All three tranches are priced at Libor plus 275 basis points.

"The $400 million unfunded piece will earn an undrawn fee of 125 basis points. They're pricing a loan today that won't fund probably for three to six months so you're taking a risk for a few months. People don't view that too positively, so I think that's why they're holding back commitments," the fund manager said.

"Historically, the stand-alone Pinnacle deal performed around 991/2, par 1/2," the fund manager continued. "I don't think people view this as a deal that will trade at the 101 level like every other new issue. So, why commit now when you can wait until it actually funds and buy it at par then, getting rid of the market risk. This is considered a fairly large transaction for the food sector, so it is expected to trade around in the future.

"There have been no discussions about enhancing the undrawn fee [to attract more commitments]. They're acting like it's no big deal. Like everything is fine the way it is. Perhaps they're just extraordinarily good actors. They're not going to give anything up," the fund manager concluded.

JPMorgan and Deutsche are the lead banks on the transaction.

Originally Pinnacle Foods' facility was expected to be sized at $225 million, consisting of a $170 million term loan B and $55 million of pro rata bank debt.

However, the deal was restructured once news came out that Aurora entered into a letter of intent with J.P. Morgan Partners LLC, J.W. Childs Equity Partners III LP, an informal committee of bondholders representing about 50% of the company's outstanding senior subordinated notes and C. Dean Metropoulos and Co., under which Aurora will be combined with Pinnacle Foods.

Pinnacle Foods is a Cherry Hill, N.J., manufacturer and marketer of branded food products formed by Hicks, Muse, Tate & Furst and C. Dean Metropoulos in 2001 to acquire Swanson frozen foods, Vlasic pickles and condiments, and Open Pit barbeque sauce from Vlasic Foods International. Aurora Foods is a St. Louis producer and marketer of leading food brands.

Hollinger International Inc.'s bank debt has held steady around par levels despite Standard & Poor's announcement on Tuesday that it might downgrade the company's ratings and Monday's news of a comprehensive restructuring proposal.

Hollinger announced that it has engaged Lazard Freres & Co. LLC to review and evaluate its strategic alternatives, including a possible sale of Hollinger International, a possible combination of Hollinger International with Hollinger or a sale of one or more major properties and certain board and management changes.

"The chance of repayment seems even higher now. They're going to get sold," a trader said explaining why the bank debt remained strong despite the seemingly negative news.

Furthermore, as investors are hopeful for paydown, they chose to ignore S&P's announcement that Hollinger Inc.'s senior secured debt rating of B was placed on CreditWatch with negative implications. At the same time, S&P placed Hollinger International Inc. and Hollinger International Publishing Inc. on CreditWatch with developing implications.

The CreditWatch action on Hollinger reflects the prospect for even further deterioration in financial flexibility at the holding company level given the termination of the management agreement between Hollinger International and Ravelston Corp. Ltd., and the reduction of the latter's support payments to Hollinger, S&P said.

According to a Hollinger news release, the termination of this agreement might have a negative affect on the company's liquidity and, unless the strategic process to be undertaken by Hollinger International yields sufficient dividends or other distributions or Hollinger completes a financing or sale of those of its assets, Hollinger might not be able to meet its obligations as they come due, including its obligations under its senior secured notes.

"Further exacerbating matters on Hollinger is contention regarding the authorization, amount, and purpose of noncompete payments associated with the sale of Hollinger International newspapers received by Hollinger, which it will likely have to repay in full to Hollinger International," said S&P credit analyst Don Povilaitis, in a rating release.

These events have culminated with the resignation of chief executive officer Conrad Black, as well as that of several key senior officers and board members, S&P said.

Hollinger is a Chicago newspaper publisher.

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