Del Monte Foods
married drop-down and non-pro-rata uptiering last week.
The deal, dubbed Project Ambrosia, a possible nod to a Southern fruit salad that sometimes uses canned produce, or the food or drink of the Greek gods, moved most of the canned food producer’s assets to a new subsidiary and proposed debt swaps containing different treatments for lenders in the same tranche, according to sources.
The company has
raised $240 million of new money backstopped by an ad hoc group of term loan lenders, according to sources. The new capital has first-out position in a new superpriority first lien term loan facility in Del Monte Foods Corporation II Inc., or DMFC, a newly formed subsidiary of Del Monte Foods Inc., or DMFI, the borrower under the pre-transaction term loan facility containing substantially all assets of the company. All existing term lenders are offered the chance to participate in the first-out new-money financing on a pro rata basis through a syndication process. The new money would be used to pay down the ABL facility, fund working capital needs during the current pack season from July to September and repay past-due vendor payables.
Certain financing parties, including Jefferies, provided $30 million as part of the new facility to an escrow facility that will be converted into first-out debt if the company’s parent does not contribute the same amount by Aug. 31, according to sources. If the parent provides such contribution by the deadline, then these funds will be returned. If the parent contribution is provided between Aug. 31, 2024, and Jan. 31, 2025, the proceeds will be used to repay the first out facility. The parent contribution may be in the form of subordinated secured debt.
Lenders electing to participate in the new money shall receive a 4% upfront PIK fee and will be offered the ability to roll up about 30.5% of their existing term loan claims into a second-out position at par under the new term loan facility. Residual claims of participating lenders will receive a third-out position at par under the new term loan facility. Lenders choosing not to provide new money will have the option to participate in the open-market purchase of their existing loans and a cashless exchange at par into a third-out position under the new facility.
The company seems to have already closed a transaction with an ad hoc group of lenders holding $407 million, or 57%, of the pre-transaction term loans, swapping 100% of their holdings into second-out loans at par, because the new-money syndication procedures called for the participation of lenders holding $306.2 million of the loans, according to sources. A $93.5 million cap was implemented for this public phase of the deal. Assuming 100% participation, the numbers add up for such ad hoc group/non ad hoc group treatment assumptions.
It remains to be seen whether the non-pro-rata debt swap will be challenged by disadvantaged lenders. So far this year, no non-pro-rata uptiering has been challenged in a material way. Apex Tool minority lenders
sought legal advice, but more than 91% of the tranche
ended up participating in the deal. Loparex minority lenders similarly
sought advice from advisors, but 99% of first lien lenders
participated. Professionals have been structuring non-pro-rata liability management deals recently in a way that gives non ad hoc group lenders the chance to participate, but maybe at slightly worse or a lot worse economics than ad hoc group lenders.
Assuming 100% lender participation in the Del Monte transaction, the pro forma capital structure would include a $750 million SOFR+350 bps ABL due September 2027 with $329 million drawn, a $269 million first-out loan, which includes a PIK premium, a $500 million second-out loan and a $213 million third-out loan, all at DMFC. The ABL commitment would be reduced by $125 million in February 2025, the sources said.
The old debt at DMFI, including the $750 million SOFR+250 bps ABL due September 2027 with $359 million outstanding and $713 million SOFR+425 bps term loan due May 2029, would be eliminated. The company had $23.5 million of letter of credit outstanding under the ABL as of July 30.
Total consolidated debt would increase to $1.31 billion from $1.07 billion.
The company closed some of the transactions on Aug. 2. A lender call was held on Aug. 5. Deadline to participate in the transaction is Monday, Aug. 12, at 5 p.m. ET. It targets a transaction closing date of Aug. 14.
Del Monte Foods is advised by Kramer Levin, PJT Partners and Alvarez & Marsal, as
reported. An ad hoc group of lenders is
represented by Gibson Dunn and Houlihan Lokey.
Superpriority Facility Terms
The $269 million first out tranche matures Aug. 2, 2028, and pays SOFR+800 bps, according to sources. If the parent contribution is not funded by Aug. 31, then the interest rate will increase by 50 bps PIK per month, capped at 300 bps. Upon a parent contribution, the increased margin will be zero.
The $500 million second-out tranche matures Aug. 2, 2028, and pays SOFR+425 bps. The tranche amortizes 1%.
The $213 million third-out tranche matures Aug. 2, 2028, and pays SOFR+325 bps. The tranche amortizes 1%.
All three tranches have a 10 bps CSA adjustment for a one-month interest period and a 0.5% SOFR floor.
The facility has a superpriority lien, senior to existing liens, on all non-ABL priority collateral, a second priority lien on ABL priority collateral, and a first priority on unencumbered assets, the sources said.
The facility has a $50 million minimum excess ABL availability covenant. It also stipulates certain budget milestones, including a $10 million variance to quarterly consolidated EBITDA for the quarter ended January 2025, and a 20% variance to LTM consolidated EBITDA for the quarter ended April 2025 and beyond. A breach of any milestones would trigger governance provisions instead of an event of default.
The governance provisions include the appointment of one independent director with the resignation of one non-independent director.
Requisite lenders can appoint another independent director, and a special committee of three independent directors will have the authority of the board to explore and implement strategic alternatives, including a refinancing, individual asset sales, etc., if either of the two following conditions is satisfied:
- A parent contribution is not received by Jan. 31, 2025, and a failure to meet the January 2025 material budget milestone; or
- Failure to meet two consecutive material budget milestones.
The governance provisions would be removed if the first out tranche is refinanced, provided that total leverage is less than 5x, and the company has satisfied prior three consecutive material budget milestones without an equity cure.
The facility also stipulates that if pro forma gross leverage is less than 5x and pro forma EBITDA is above $125 million, then 100% of certain liquidity will be swept to term lenders. Otherwise, 60% of such liquidity will be swept to term lenders and 40% to ABL lenders. Net asset sale proceeds will be swept 60%/40% term lenders/ABL lenders, but cash generated by the Hanford, Markesan and Toppenish plants are carved out of the sweep.
Priorities Going Forward
The company said its focus for fiscal year 2025 and beyond is to address its liquidity and leverage, restore margins and profitability, increase EBITDA via cost reduction, complete inventory and pack reduction plans, and generate sales volume growth.
Del Monte Foods said it sees EBITDA margin improving every year from 2.6% in fiscal 2024 to 9.6% in fiscal 2027, as gross sales increase every year and gross profit improves from 14.3% to 21.2%, according to sources. Adjusted EBITDA is expected to hit $189.8 million in fiscal 2027, compared with $45.2 million in fiscal 2024. Inventory would normalize from $957.7 million for fiscal 2024 to $682 million to $691 million in the next three years. Payables would drop from $246 million for fiscal 2024 to $183 million to $203 million. The company said its interest expenses would be lower in fiscal 2026 and 2027 because of lower ABL usage.
Del Monte Foods, Kramer Levin, Gibson Dunn and Jefferies did not respond to requests for comment. PJT Partners and Houlihan Lokey declined to comment.