RGF said it would use £4.5m of the funding from shareholders Napier Brown Ingredients, Omnicare International Investors and Downing to make the final payment on its acquisition of snack bar manufacturer Brighter Foods.
Up to £4.2m will also be provided to fund the company’s foreseeable working capital needs, including for the build-up of inventory in advance of RGF’s third quarter in October to December, typically its busiest.
The funding will be provided by means of secured loan notes, with an annual coupon of 12% from the three major shareholders.
Severe financial challenges
RGF said the terms were reflective of the severe financial challenges the company had faced over the past 12 months.
In a statement, RGF said: “In the current board's view, historically poor controls and governance have contributed to poor performance in all divisions and the issues have been exacerbated by disruption caused by the delays in implementation of complex investment programs.
“Without this funding the directors believe that there is a significant risk that the company would fail to be able to trade.”
Working capital constraint
RGF claimed that a turnaround of the business was now under way and the additional financing would allow the company to meet its obligations and trade without working capital constraint.
The application for funding from the company’s shareholders followed a similar situation at the start of the year, which saw RGF receive £3m in loan notes.
The funding was to supplement recently agreed short-term financing, after revealing a pre-tax loss of £6.7m in interim results for the six months to 30 September 2017.
Meanwhile, last month, RGF sold subsidiary Garrett Ingredients to Kent Foods, in a deal worth about £1.8m. The sale included the business as well as certain assets, undisclosed by the company, with the money used to help reduce RGF’s indebtedness.