Thu 03/25/2021 17:48 PM
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City Brewing Co. LLC has tapped the market for a $850 million seven-year loan talked at L+375 bps in an effort to refinance its existing debt; buy out minority shareholders, including Blue Ribbon’s owner Blue Ribbon Holdings; and also pay a dividend to shareholders, according to sources. Via the expected payout to Blue Ribbon Holdings, an entity that is 100% controlled by Blue Ribbon Partners, funds will go toward repaying at least $90 million of brewery Blue Ribbon’s $455.2 million first lien term loan due Nov. 30, according to sources. In addition, $45 million of the City loan proceeds are earmarked to purchase Irwindale’s brewing equipment from Blue Ribbon, they noted. As previously reported, Blue Ribbon will use the $45 million of sale proceeds, along with a $45 million equity contribution from existing shareholders, to prepay $90 million of term debt, with a refinancing of remaining outstanding amounts slated for later in the year. Continue reading as our Americas Core Credit team analyzes and reviews the City Brewing refinancing agreements and Request a Trial for access to the linked documents as well as our analysis and reporting on hundreds of other stressed, distressed and performing credits.

City Brewing’s new $850 million loan will be used, along with new and rollover equity, to pay its shareholders, with $367 million going toward acquiring equity from minority shareholders, $479 million to distribute to shareholders, and $453 million to cover Blue Ribbon Holdings’ rollover equity, the sources noted.

Other uses of proceeds from the financing include $276 million to refinance debt at City Brewing, $46 million for fees and expenses, and $37 million to go in as cash on the balance sheet, the sources said.

Under City Brewing’s proposed financing, Charlesbank and Oaktree will contribute $400 million in new and rollover equity (as a previous and continuing investor in City Brewing with funds they are receiving from the distribution), and Blue Ribbon Holdings will roll over $453 million in equity, the sources said. Post recapitalization, Blue Ribbon Holdings will own 53% of Caiman HoldCo LLC, City Brewing’s holdco, Charlesbank Capital Partners will own 35% and Oaktree Capital Management 12%, they added.

City Brewing’s proposed $850 million facility is offered at 99 OID with a 0.75% LIBOR floor, the sources said, adding the company also has an existing $100 million revolver due 2026.

Moody's assigned a B1 CFR rating to City Brewing and a B1 to the proposed loan. Moody’s notes that pro forma leverage will be around 5x, even with the $400 million in new and rollover equity from Charlesbank and Oaktree, according to the report. Significant new business has already been committed for 2021, the report said, and is expected to lift EBITDA, allowing for roughly two turns of leverage reduction by year-end. Free cash flow is projected to be positive after 2021, as new business ramps up.

In addition to the growth from its largest customers, particularly in flavored malt beverages and hard seltzers, City also expects to gain most of Pabst Brewing Co.'s production volume as that company transitions from its current co-packing arrangement with Molson Coors by 2025, according to the ratings report. Pabst will be a large customer, although not the largest. The company had $60 million of cash and cash equivalents as of year-end, and 2020 pro forma adjusted EBITDA was $193 million.

Blue Ribbon’s term loan was quoted at 97.55/98.74 as of today, March 25, according to Solve Advisors.

Blue Ribbon is owned by Blue Ribbon LLC and Blue Ribbon Intermediate Holdings, a partnership between American beer entrepreneur Eugene Kashper and San Francisco-based TSG Consumer Partners LLC. However, TSG Partners has divested its stake in Blue Ribbon, according to sources.

City Brewing did not immediately respond to a request for comment. Blue Ribbon Partners and TSG Partners declined to comment.

--Ellen Schneider, Adelene Lee
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