U.K.’s Chicken King Testing Creditor Patience as Maturities Loom
(Bloomberg) -- The Chicken King’s creditors are getting tetchy.
They’re asking how the owner of some of Britain’s best-known food brands plans to repay 720 million pounds ($947 million) of debt due in the next three years when earnings are flagging. Boparan Holdings Ltd.’s bonds due in 2021 are now trading at less than 87 percent of face value, according to data compiled by Bloomberg and that same question prompted a one-notch downgrade to CCC+ from S&P Global Ratings last week.
The answer, if recent events are anything to go by, may lie in money from asset sales. The company said last week it’s paying off half a 250 million pound bond due next year with proceeds from the disposal of its Goodfella’s pizza brand.
But investors aren’t happy.
They thought Boparan’s bond terms obliged it to spread proceeds from a disposal across all its notes, according to Tanvi Arora, a credit analyst at Lucror Analytics in Singapore. Instead, the management found what CreditSights analysts call “the requisite wrinkle” in the small print allowing them to focus on the most imminent bond.
“What Boparan is doing may be in line with documentation but it has disappointed some bondholders who aren’t sure the company will be able to pay their debt when it matures,” said Arora. “The outlook is bleak.”
The cost of insuring the company’s debt against default soared more than 100 basis points last week to 714, the highest since December according to data from CMA.
Boparan is the parent company of 2 Sisters Food Group which was founded 25 years ago in England’s West Midlands and built up around poultry products, earning founder Ranjit Singh Boparan his ‘Chicken King’ moniker in the U.K. media. It says cutting debt is a priority.
Reviewing Options
“We are reviewing all our options in relation to bond repayments and made it clear our covenant provisions mean we have more flexibility on how and when we choose to proceed,” a company spokesman said in an emailed statement. “Our key priorities are strengthening the balance sheet and reducing debt.”
That debt was 4.8 times its earnings before interest, taxes, depreciation and amortization in the third quarter, up from 4.6 times a year earlier, the company disclosed last week. S&P said it expects adjusted leverage to rise above 10 times earnings at the end of the year, from nine times in 2017.
Selling more assets may be its best option given “slow progress on operations,” CreditSights said in a note. Its pies business, Irish frozen fish unit Donegal Catch or biscuits are the main candidates, it said.
“Additional asset disposals might help to refinance the remaining note but execution risks are high and difficult to build into our assumptions,” said Paolo Leschiutta, senior vice president at Moody’s Investors Service. Moody’s already downgraded Boparan to seven levels below investment grade in April, citing its deteriorating performance.
Boparan has the option from July 15 of redeeming at face value the 2019 notes, according to data compiled by Bloomberg. Even so, those bonds are currently quoted below par at 97 pence on the pound.
“The repayment of half of the 2019 bonds provides the company with some breathing space but there are still a lot of questions regarding the sustainability of the capital structure,” said Sam Ross, global credit analyst at Allianz Global Investors in London. “It’s uncertain whether Boparan will be able to refinance the balance of its upcoming debt maturities unless it can demonstrate a meaningful improvement in operating performance.”
2018-07-02 08:41:56.989 GMT
By Katie Linsell and Laura Benitez