Pinnacle Foods $675 million credit facility closes as the company's LBO is completed

By Sara Rosenberg

New York, Nov. 26 - The acquisition of Pinnacle Foods Corp. by JPMorgan Partners, in partnership with C. Dean Metropoulos, from Hicks, Muse, Tate & Furst Inc. was completed, according to a news release. In connection with this acquisition and to provide for the future acquisition of Aurora Foods Inc., the company obtained a new $675 million credit facility (B1/BB-).

JPMorgan and Deutsche are the lead banks on the transaction.

The facility consists of a $120 million term loan B, a $425 million delayed draw term loan and a $130 million revolver, with all three tranches carrying an interest rate of Libor plus 275 basis points. The delay draw term loan has an undrawn fee of 125 basis points.

Originally, the deal was launched as a $170 million term loan B, a $400 million delayed draw term loan and a $130 million revolver. However, following the company's decision to upsize its bond offering by $50 million to $200 million, the term loan B was reduced by $50 million and the delay draw was increased by $25 million.

During syndication there were some questions surrounding the progress of the deal as apparently only $450 million of commitments were received for the $570 million institutional piece a day before the commitment deadline, a fund manager previously told Prospect News. Primarily, the hesitation in investor involvement was attributed to the $400 million unfunded piece only earning an undrawn fee of 125 basis points; since the tranche may not fund for six to nine months some people were skeptical about taking the risk.

But on the day of the deadline, it was reported that the term loans were fully subscribed, wiping out any doubt that may have been floating around the marketplace.

The $120 million term B will be used to help support the acquisition of Pinnacle Foods. The $425 million delayed draw term loan will be used to help finance the Aurora Foods acquisition.

Aurora will be combined with Pinnacle as part of its comprehensive restructuring plan, which has received support of senior lenders and involved an informal committee of bondholders that represents about $202.7 million of the company's $400 million senior subordinated notes in the negotiations, according to a company news release. The transaction will be effected through a prearranged bankruptcy reorganization case, which is expected to be completed by March 31.

Effectiveness of the definitive agreement, which was just announced Tuesday night, is subject to satisfactory completion by Aurora and the informal committee of bondholders of their due diligence investigations of Pinnacle.

"Execution of the definitive agreement brings us closer to successfully completing Aurora's financial restructuring through a transaction that maximizes value for Aurora's stakeholders," said Dale F. Morrison, chairman and interim chief executive officer, in the news release. "The combination of these two businesses creates a strong branded food company that will be well positioned for future growth."

Under the agreement, Aurora's senior lenders will be paid in full in cash under the company's existing credit facility. Assuming the credit facility is paid in full by March 31, 2004, the lenders will receive $15 million in cash for certain leverage and asset sale fees. Holders of Aurora's 12% senior unsecured notes due 2005 will be paid principal and interest in full in cash but will not receive $1.9 million of unamortized original issue discount. Holders of Aurora's 8¾% senior subordinated notes due 2008 and 9 7/8% senior subordinated notes due 2007 will receive either cash at the rate of $0.50 per dollar of principal amount or equity in the combined company at $0.53 per dollar of principal amount. Holders choosing equity will also receive subscription rights to increase their investment in the combined company.

Existing common and preferred stockholders will not receive any distributions, and the existing common and preferred shares will be cancelled. The buyers of Pinnacle will contribute their equity in Pinnacle, to which it will have contributed at least an additional $85 million, in exchange for the remaining equity in the combined company, according to the release.

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 food brands.

Overall, as expected, both the primary and the secondary bank loan market were in holiday mode on Wednesday with little to no activity taking place as people were getting ready to head out and begin their long weekend by early afternoon.

"It is dead. People are getting ready to go home," one trader said when asked whether any secondary moves took place during the shortened session.

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