Tue 05/03/2022 04:32 AM
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Refresco Primary Preview from Reorg's EMEA Core Credit team.

Refresco’s €3.4 billion-equivalent seven-year, first lien term loan funding the acquisition of a majority stake by incoming sponsor KKR will leave the soft drinks bottling solutions provider a hefty 6.6x net levered on full-year 2021 adjusted EBITDA, generating little cash and replacing the current senior/junior debt structure with an all-senior structure without the benefit of subordination.

The group is, however, the largest global independent bottling business by some distance, has been a stalwart of the European leveraged finance market with a solid track record and proven resilience in past downturns and, while not completely immune, seems to be weathering the current surge of raw material inflation. That and the absence of any other deals in the loan market generated strong demand for its offering, enabling leads to tighten price talk on the euro tranche and bring forward commitments, sources told Reorg.

Refresco operates 65 plants with 282 bottling lines in Europe (61% of 2021 sales) and North America (39%). The group generated €4.2 billion in net revenue in 2021 after bottling 11.9 billion liters of mainly juices and soft drinks. The group has a full service outsourced supply chain in the beverage sector, serving both retailers including Lidl, Walmart, Asda, Tesco and Aldi, as well as brands including Pepsico and Coca-Cola.

KKR acquired a 69% stake in the group earlier this year from PAI Partners, which is retaining a 29% stake. The acquisition price was €6.9 billion, funded by the new €3.4 billion-equivalent loan, €3.457 billion of equity and €420 million of rolled leases. The deal will take net opening post-IFRS leverage to 5.6x (including leases) based on full-year 2021 pro forma adjusted EBITDA of €663 million. The financing package includes an undrawn €500 million RCF.

The starting leverage is pretty punchy, especially since the group’s headline metrics include significant addbacks, sources noted. Refresco generated €532 million in 2021, but is adding back €31 million of EBITDA for signed and completed acquisitions, €46 million for signed M&A synergies, €32 million for additional EBITDA as a result of investments made and €20 million of run-rate EBITDA adjustments. While some of the adjustments are fair, the expected synergies look aggressive and will likely take some time to achieve, which means actual starting net leverage will be well over 6x, some of the sources said.

The buyout not only releverages Refresco, the new structure also increases the amount of senior debt by eliminating the €445 million junior debt under the previous structure, which had provided some subordination to the senior debt, sources added.

The group will also generate little if any free cash flow in the near term, sources noted. Free operating cash flow will be negative this year, driven by acquisitions (such as German mineral water and carbonated soft drinks bottler Hansa-Heemann, and three Coca-Cola plants in the U.S.), which pushed capex to €320 million from €265 million in 2021, and corresponding increases in working capital. But the investments should also increase earnings and the group could generate between €50 million to €100 million of free operating cash flow again in 2023, Moody’s and S&P estimated. However, the new financing consists of floating-rate notes, which means that the widely expected rate rises will push up the group’s interest costs, curbing its ability to generate positive free cash flow, sources noted.

However, the deal comes with a solid equity cushion, with the total net capitalisation including the sponsor’s cash equity amounting to €7.2 billion, a roughly 10.8x EBITDA to EV multiple.

Refresco also has a proven management team and a solid track record, with EBITDA growing at 15.7% CAGR to €564 million in 2021 from €364 million in 2018, which deleveraged the group almost two turns to 4.7x from 6.5x.

While the underlying beverage market is fairly mature and will likely grow in the low single digits at best, the group expects to benefit from continuing outsourcing in the sector. It will also continue to pursue its M&A strategy under KKR. Refresco has grown rapidly through acquisitions, which has helped it increase revenue from just €270 million in 2001 to €4.2 billion in 2021. With €100 million of cash on balance sheet and its €500 million undrawn RCF it has plenty of firepower. Management told investors that it aims to continue consolidating the still highly fragmented bottling market, which would largely involve making small bolt-ons. It added that it wants to enter new geographies, which would likely involve a bigger acquisition, sources noted. Refresco is further looking to increase its share of the higher-margin and growing alcoholic beverages sector, which accounted for just 3% of group sales last year.

Aside from the structure, the biggest other concern for lenders is the current unprecedented raw material inflation, which knocked Refresco’s first-quarter results off course. The group’s adjusted EBITDA fell by 9.2% year over year to €108 million in the first quarter, driven by a combination of an increase in input costs and the inflationary impact on all variable costs despite a 16.9% year-over-year jump in revenue to €1.15 billion.

Refresco is generally well hedged in terms of input prices. In its U.S. retail business the group is able to renegotiate prices following a six-week notice period. In Europe, the group has annual contracts but it typically forward buys 70% to 80% of its raw materials, such as aluminum, so is fairly well hedged. In its global and emerging brands (GNEs) business, the main ingredients are supplied to Refresco by its customers. However, the group is currently facing huge increases in labor and other costs relating to logistics, such as warehousing and pallets, which are not covered by its pass-through mechanisms, sources noted.

However, Referesco has implemented price increases recently, which should become visible in its earnings in the coming quarters. Investors took comfort from the fact that the group adds a lot of value to its clients and that management said it would cut back on capex if margin pressure persisted.

As a result of strong demand for the deal, leads have tightened price talk on the €1.53 billion euro tranche to the 98.5 to 99 range from the 98 to 98.5 range previously. The margin is at Euribor+450 bps.

The sterling tranche is being talked in the SONIA+525 bps area with the OID remaining in the 98 to 98.5 area, while the dollar portion is guided in the SOFR+425 to +450 bps range with the OID remaining in the 98 to 98.5 range.

Commitments for the dollar portion have been moved to today, May 3 by 5 p.m. ET from Wednesday, May 4, while commitments for the euro and sterling portions have been moved to 10 a.m. BST on May 4, from 5 p.m. on the same day.

The pricing looks reasonable given the deal’s B2/B+ rating although investors expect a premium for the removal of the junior debt layer. The initial deal documentation was also highly aggressive with a number of off-market features including an inside maturity basket set at 200%, dividend restrictions set outside of opening leverage, and margin ratchets that kick in almost from the outset. However, investors expect the documentation to be cleaned up.

Refresco’s capital structure as of May 2022 is below:

Refresco Group B.V.


EBITDA Multiple

(EUR in Millions)





€500M Revolving Credit Facility due 2024



EUR Term Loan B



USD Term Loan B



GBP Term Loan B



Total Senior Secured Debt



Lease Liabilities


Total IFRS 16 Lease Liabilities



Total Debt



Less: Cash and Equivalents


Net Debt



Operating Metrics




RCF Commitments


Plus: Cash and Equivalents


Total Liquidity


Credit Metrics

Gross Leverage


Net Leverage


Capital structure is post IFRS-16. EBITDA is the company's pro forma adjusted FY21 figure as reported.

– Robert Schach
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