Client
Home Market Foods is a $100 million progressive and diversified premium food and meal solutions Company based in Norwood, MA.
Problem
In the first half of Fiscal 2005, Home Market Foods experienced a “perfect storm” of events that culminated in a liquidity crunch: an unprecedented rise in raw meat prices; problems associated with a systems conversion; the acquisition of a new frozen food facility remotely located from headquarters; and subsequent facility consolidation efforts from previous acquisitions. These combined challenges caused the Company to violate several financial covenants with its senior secured lender, its secured equipment lenders and its unsecured subordinated lenders. Although a standstill agreement was negotiated with the subordinated lenders, the senior lender had grown weary of the credit by the middle of the second quarter of Fiscal 2006. Home Market Foods’ management team attempted to refinance the Company on its own and also with a 3rd party consultant, yet these efforts cost the Company valuable time and significant forbearance fees in exchange for extensions. Lacking a successful Company-driven solution, the senior lender required Home Market Foods to engage an investment banker to refinance the existing senior lender in conjunction with an overall recapitalization of the Company.
Solution
Phoenix Capital Resources was engaged to recapitalize and refinance the Company’s debt. Phoenix Capital delivered a financing memorandum within three weeks of beginning the engagement, and identified, justified and quantified add-backs and adjustments to the prior year’s EBITDA – enabling Phoenix Capital to generate interest with several new investors and lenders in the Company’s future enterprise value based on the Company’s projected EBITDA for 2007, and thereby justifying a 4x plus leverage ratio based on 2007’s projected EBITDA.
Despite the Company’s substantially over-leveraged balance sheet and minimal collateral value, Phoenix Capital’s efforts resulted in the Company completing a transaction that successfully resulted in a restructuring and recapitalization of the Company’s balance sheet. The transaction consisted of:
- A new $10 million revolving credit facility from LaSalle Business Credit based on advances against receivables and inventory
- A new $18.5 million senior term loan from Basso Capital based on enterprise value
- The restructuring of $9.0 million of existing equipment loans
- The restructuring of approximately $2.5 million of seller notes from previous acquisitions
- The restructuring of $.8 million of real estate loans
- The elimination of approximately $17.5 million of unsecured subordinated notes
- The pay off of approximately $20.0 million of senior secured debt
This complex financing structure provided the Company with substantial new working capital and availability at closing. In addition to addressing the Company’s current and future working capital needs, Phoenix Capital helped enhance and preserve the value of Home Market Foods by de-leveraging the balance sheet by more than $22.0 million; allowing the owners to retain majority ownership of the Company while eliminating certain personal guarantees; and better positioning the Company for future growth.