Merisant says liquidity ample; capital structure remains obstacle to growth

By Jennifer Lanning Drey

Portland, Ore., April 3 - Merisant Co. has ample liquidity to fund its near-term initiatives and obligations despite pulling its $245 million credit facility, but the company continues to consider its capital structure to be an obstacle to its plans for growth, Merisant executives said Thursday during the company's fourth-quarter earnings conference call.

Under its current credit agreement, Merisant is required to put 50% of its excess cash flow from operations toward prepayment of its term loans.

As previously reported, Merisant launched marketing of a new senior secured credit facility on March 17. However, due to market conditions not being conducive to the completion of the transaction on favorable terms, Merisant announced yesterday it would end its effort.

"We are interested in optimizing the capital structure to provide more flexibility for the business to grow, expand and develop. The credit facility initiative was one of those initiatives to gain more flexibility and more opportunities," Paul Block, chief executive officer or Merisant, said during the call.

"We did our homework and we thought it was the right thing at the right time. Unfortunately, the market didn't think it was the right time," he said.

Confining capital structure

Merisant believes that there are opportunities for future growth in the low-calorie tabletop sweetener and sweetened food categories that the company is well position to pursue. However, the company may be constrained in its ability to realize the full value of new products because their launches will require capital, Merisant said in its 10-K filed with the Securities and Exchange Commission on March 31.

"If we cannot generate cash flows from operations significantly in excess of our debt obligations, we may not have the resources required to fully realize the value of our strategic initiatives," the company said in the 10-K.

During the call, Block declined to provide a definitive answer on whether the company has hired a financial advisor or whether it is in discussions with specific bondholders regarding altering or modifying restrictive clauses.

"Management looks forward to constructive discussions with our lenders and noteholders that will maximize the value of the company going forward," he said.

$15 million prepayment

In accordance with the covenants of the credit facility, Merisant will use cash to prepay about $15 million of its term loan this week, Julie Wool, vice president of finance, controller, for Merisant, reported during the call.

Merisant ended 2007 with about $429 million of outstanding long-term debt and cash and cash equivalents of $51 million.

For full-year 2007, Merisant's net sales declined by 1%, as compared to 2006; however, EBITDA showed a 4% year-over-year improvement.

"This is the first increase in EBITDA in several years and indicates greater stability in our overall business," Wool said.

Merisant is a Chicago-based marketer of low-calorie tabletop sweeteners.

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