ConAgra: 18.6 million pound beef recall should not impact Swift junk bond deal

By Paul A. Harris

St. Louis, Mo., July 19 - Although ConAgra Foods, Inc. has recalled 18.6 million pounds of beef in what is reportedly the second largest beef recall in US history, ConAgra told Prospect News on Friday that the Swift & Co.'s planned junk bond offering, set to price Wednesday, should not be impacted.

The new company is scheduled to sell $400 million of seven-year senior notes (B1/B+).

"I don't expect it to be impacted, nor have I heard anybody around here expressing concern over the recall impacting the deal," commented ConAgra vice president of investor relations Chris Klinefelter.

In an LBO sponsored by Hicks, Muse, Tate & Furst, a group of investors is poised to acquire 54% of ConAgra's U.S. and Australian beef, pork and lamb operations upon completion of the financing.

That financing also includes a $550 million secured credit facility (Ba2/BB).

Salomon Smith Barney and JP Morgan are the bookrunners on the bond deal and the bank loan.

Chris Klinefelter said that the company has known for some weeks that there would be a beef recall owing to bacterial contamination that the US Dept. of Agriculture attributes to E. coli.

"It's an expansion of something that was already announced," Klinefelter said. "All the tests (for E. Coli) from July 12 forward have been negative.

"The original announcement was for about 350,000 pounds," he added. "That was from one day's production. Now it has been broadened to approximately 25 days of ground beef production at one plant.

"18.6 million pounds is the maximum," he continued, adding that the recall is "largely precautionary."

One sell-side source told Prospect News Friday that the recall likely will have some impact on the LBO.

"It will probably impact the bond deal but no one knows to what extent," the source commented.

"The loan is done, so that gives some comfort. If the loan book starts to unravel - meaning investors pull out of the deal - you run the risk that the loan deal falls apart. If the loan deal falls apart then the bond deal will.

"It's a little too early to tell. It's up in the air right now."

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