Oxo-Maker Demands Banks Stump Up £1bn Deal

The owner of Mr Kipling cakes and Oxo stock cubes is demanding that banks participating in a forthcoming capital-raising agree to lend it millions of pounds to help overhaul its finances.

Sky News understands that Premier Foods (LSE: PFD.L - news) , which this week agreed to relinquish control of Hovis, its bread division, has appointed Credit Suisse (NYSE: CS - news) , HSBC and Jefferies to underwrite a rights issue that will raise roughly £350m after expenses.

The new equity will be used to reduce the indebted company's borrowings and will form part of a £1bn-plus overhaul of Premier (NasdaqGS: PINC - news) 's capital structure.

Insiders said on Friday the three banks had been asked to "show their commitment" to the plan by agreeing to make their own balance sheets available to Premier Foods.

Jefferies, for example, is likely to provide a loan of roughly £25m as part of a new debt facility valued at roughly £250m, they said.

The request from Premier Foods comes as it applies the finishing touches to an ambitious blueprint aimed at putting its finances on a long-term footing following years of doubts about its future. The details are expected to be announced in March.

The company, which also makes Sharwoods sauces, Angel Delight desserts and Bisto gravies, ran into trouble following a merger with RHM and other debt-fuelled acquisitions.

Warburg Pincus, a buyout firm, has been a major shareholder in Premier Foods since 2009, and still owns about 17% of the company.

It is expected to participate in the new rights issue although a final decision has not yet been taken, a source said.

Under the plans being worked on by Gavin Darby, chief executive, Premier Foods will raise approximately £250m from a bond issue, on which Barclays (LSE: BARC.L - news) , BNP Paribas (Milan: BNP.MI - news) and HSBC are working.

A further £250m will be available through new debt facilities, with the existing syndicate of nearly 30 lenders reduced to roughly eight, according to a person close to Premier.

Lloyds Banking Group, the taxpayer-backed bank, will reduce its participation in the debt by about a third, they added.

Another crucial component of the capital structure overhaul will be a revised agreement with Premier Foods' pension trustees.

Under the existing payment schedule, the company is obliged to pay as much as £75m into the scheme this year, according to analysts.

Mr Darby is now engaged in discussions about sharply reducing that sum as he seeks to tackle the nearly-£400m deficit in a manageable way.

The deal to offload Hovis and the rest of Premier Foods' bread division involves Gores Group, a private equity firm, paying £30m for a 51% controlling stake in the new joint venture.

The transaction values the bread business at £87.5m, including £28.7m of working capital that will be retained by Premier Foods.

Analysts said that the revamp of Premier Foods' balance sheet would reduce its net debt-to-earnings ratio to roughly three times, in line with other major food companies.

A Premier Foods spokesman declined to comment.

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