Premier Foods hits hard times


A purveyor of some of the country's favourite food brands may have to sell some off as it battles the risk of not being able to refinance its debts.

Premier Foods, which sells brands including Hartley's Jam and Hayward's Pickle, is one of the biggest suppliers to the UK high street, and is relying on a serious boost in Christmas sales to save it from selling off the popular brands at rock-bottom prices.

Premier Foods has just four months to meet tests that measure the size of its debt against profitability and interest cover. The Daily Mail reports that at the half-year stage, net debt was 3.61 times earnings compared with a threshold set by the bank of 4.25, but 3.9 times at the year-end, leaving a gap or 'headroom' of only about 15%.

Analysts fear that the gap, alongside the other key measure of net debt-to-interest cover, might disappear by March at the current trading levels – preventing the group from refinancing its £1.3 billion of debt.

Premier said the group was negotiating with banks, led by the Royal Bank of Scotland, to amend the tests and extend the debt.

Forced to sell
The newspaper reports that last month, Premier committed to selling its spreads business, which includes Hartley's Jam and is worth about £80million, as well as the pickles business, including Haywards Pickle, worth about £50million.

A third business, RF Brookes, which makes chilled pizzas and ready meals for retailers, caterers and restaurant chains, and also includes Premier's Irish business, is worth at least £50million. Selling them could raise £200 million, enough to increase the headroom against the banks' tests.

It sold its Quorn vegetarian brand for £205 million and canning business for £182 million last year. This generated with little fuss as they were worth a fraction of its total value. Yet the last year has seen the group's share price crash by about 90%, valuing it at £109 million last week.

Experts point to the recent botulism scare from Loyd Grossman's korma sauce as a contributor to some of the recent slide in the share price.

Limited options
An industry banker told the newspaper that the only way Premier could now sell any of these assets was to go through the timely and expensive process of preparing documents for shareholders – yet this would reduce the size of the payments and could mean missing the March deadline.

The alternative is to put them on the market in a 'fire sale' and receive substantially less than their real value. Premier insisted there would be no 'fire sale' and declined to comment on the sale process.
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