Aurora Foods plans to file prepackaged Chapter 11; in talks with lenders, bondholders on restructuring

By Sara Rosenberg

New York, July 2 - Aurora Foods Inc. has begun discussions with bank lenders and bondholders regarding the terms of a comprehensive financial restructuring designed to reduce outstanding indebtedness, strengthen the balance sheet and improve liquidity. The company plans on filing a pre-negotiated bankruptcy reorganization case in order to facilitate this restructuring.

Under the restructuring plan, J.W. Childs Associates, L.P., a Boston-based private equity investment firm, will purchase a 65.6% equity stake in the restructured company for $200 million and the company's existing $400 million in subordinated debt will be converted into a combination of equity and cash. The investment will be used to reduce the Aurora's outstanding bank debt and subordinated debt as well as for working capital purposes.

Existing bank lenders will be paid in full, receiving about $458 million in cash and approximately $197 million in new senior unsecured ten-year notes. Approximately $441 million of new bank financing is expected to be obtained in connection with the restructuring, including a $50 million revolver.

Holders of the 12% senior unsecured notes due 2006 will receive new ten-year senior unsecured notes in the principal amount of approximately $29 million.

Holders of the outstanding 8.75% and 9.875% senior subordinated notes due 2008 and 2007, respectively, will receive a 50% recovery on their notes consisting of cash in the aggregate amount of approximately $110 million and approximately 29.5% of the post-restructuring common stock.

Existing common and preferred stockholders will receive approximately 4.9% of the post-restructuring common stock, and the existing common and preferred shares will be cancelled in connection with the restructuring.

As part of the restructuring process, the company launched, with the support of its bank lenders, a vendor lien program under which vendors are being offered the ability to obtain a junior lien on substantially all of the company's $1.2 billion in assets for shipments made on customary terms.

Additionally, JPMorgan Chase, Aurora's agent bank, has also agreed to continue to provide the up to $30 million in accounts receivable financing.

The accounts receivable sales facility will be paid down and terminated with the execution of the restructuring plan.

In connection with the restructuring, the company has opted to defer the $8.8 million interest payment due July 1, 2003 on its outstanding 8.75% senior subordinated notes. Under the indenture for the notes, there is a 30-day grace period for interest payments. The company's bank lenders have agreed not to exercise any remedies available to them during the grace period.

"Since my arrival last September, we have been focused on two primary objectives to ensure the future success and growth of Aurora Foods," said Dale F. Morrison, chairman and interim chief executive officer, in the news release. "Our first objective was to strengthen our financial condition by improving operations and reducing costs. We have made good progress in this area that will provide a solid foundation for future growth. The second key objective was to significantly reduce our balance sheet leverage. To achieve this objective, we have been proactively pursuing a number of strategic options, including actively working our divestiture process, evaluating various restructuring alternatives and, finally, identifying and working with a number of private equity firms regarding an infusion of new equity capital in the company.

"The transaction announced today is the result of these efforts," Morrison continued. "We believe that this comprehensive restructuring, combined with the new equity investment from J.W. Childs, provides the best path for reducing our balance sheet leverage, optimizing value for all stakeholders, and leaving Aurora well positioned for the future."

Miller Buckfire Lewis Ying & Co., LLC has been retained as the financial advisor for the restructuring efforts.

As of June 30, 2003, the company had liquidity of approximately $27 million, which was comprised of cash and availability under the accounts receivable sales facility.

Aurora Foods is a St. Louis producer and marketer of leading food brands.

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