Premier Foods explores new sources of funding

The firm, which is currently fielding offers for its meat-free brands Quorn and Cauldron in a bid to reduce its debt pile, has now completed a restructure of its interest rate swap portfolio that will see it pay out £167m to lenders over the next four years to avoid being exposed to potential losses of up to £450m.

This would also help the firm seek a credit rating, which in turn opened up the possibility of raising funds in the bond market, said chief financial officer Jim Smart.

“The swaps created an unhedged exposure to certain interest rate movements which could have cost the company up to £450m. In return for agreeing to pay the current mark to market cost of £167m, the restructuring removes this risk. ​

“This, together with the pensions changes announced in August, achieves substantial progress towards the de-risking objective of our financial strategy and opens the way to diversifying our sources of funding."​

Shore Capital analyst Clive Black welcomed the move but said that Premier remained a highly indebted business with substantial pension liabilities, "liabilities that we believe would come into play quite significantly should corporate activity be sought”.​

Black, who has a ‘sell’ rating on Premier’s stock, added: “For us the leverage and pension liabilities still weigh far too heavily on the Premier operating company.”​

Disposals ​

As for selling off parts of its empire to raise funds, Premier Foods has said it would consider all offers provided that disposals did not diminish the capacity of the remaining business to repay debts and service the pension deficit.

However, the meat-free operation (comprising Quorn and Cauldron Foods) is probably the only business likely to interest multinationals such as Nestlé, although others such as Rank Hovis, RF Brookes, Avana Bakeries and Charnwood (pizza bases) might be of interest to more UK-focused firms or private equity players, according to analysts.

Total meat-free sales were down 2.9% in the first half of 2010, which Premier Foods chief executive Robert Schofield (pictured above) blamed on a lower level of promotional and marketing spend, although a return to growth was predicted in the second half.

Premier spent £3m last year and a further £1m in the first half of this year on "supply chain restructuring initiatives​" at its facility in Methwold, Norfolk, where some Quorn products are packaged and the Cauldron Foods range is manufactured.