The majority of payment-in-kind (PIK) noteholders in troubled US fishing company American Seafoods Group has agreed a restructuring agreement with an unnamed investor, according to a note from ratings agency Standard amp; Poor’s (Samp;P).
According to the Samp;P analysts, American Seafoods has announced the majority of the holders of its unrated holding companys PIK notes entered into a entered into a recapitalization agreement (CRA) with a potential investor on May 28, 2015.
The potential investor is unnamed. Both private equity Bregal Partners and Kjell Inge Rokke, the chairman of Norwegian conglomerate Aker and the founder of what is now American Seafoods, have been linked to the restructuring process by Undercurrent News sources.
American Seafoods highly leveraged capital structure, with debts of over $900 million, includes over $125m of 15% PIK notes, which continue to accrue interest and represents a growing liability on the companys balance sheet, wrote Samp;P in a note from January.
Ron Rogness, vice president of corporate relations with American Seafoods, declined to comment to Undercurrent on the identity of the investor. Bernt Bodal, the CEO of American Seafoods, did not return a request for comment.
Last week, Hallvard Muri, a key Rokke lieutenant, declined to comment to Undercurrent on a possible link between his stepping down as CEO of Aker BioMarine and American Seafoods. When Rokke ran American Seafoods, Muri was the Seattle-based companys chief financial officer and later general manager from 1995-2002 and industry sources feel he could return.
Undercurrent sources are also linking a recent bond issue by Aker, Rokkes holding company, to the American Seafoods re-financing process. On May 22, Aker competed the placement of the NOK 1 billion ($129.51m) bond issue.
We understand that 86% of the noteholders have accepted the agreement and believe they accepted the offer because of the perceived risk that ASG [American Seafoods Group] may not fulfil its original obligations, said Samp;P credit analyst Kim Logan. In our view, the offer is distressed rather than opportunistic because there is a real possibility of a conventional default over the short term; we see a risk that ASG could fail to refinance its 2015 and 2016 debt maturities or file for bankruptcy.
Upon closing of the agreement, the PIK noteholders would exchange their debt at a substantial discount for either cash or equity, which Samp;P views as a distressed exchange.
In response, Samp;P is lowering its corporate credit rating on American Seafoods to CC from CCC-, the level the ratings agency had cut the company to in January. At the time, Moodys said a default or restructuring is inevitable in the next six months.
In addition, Samp;P is lowering its issue-level ratings on the companys senior secured credit facilities to CCC from CCC+.
The recovery rating remains 1, indicating that lenders could expect very high (90% to 100%) recovery in the event of a payment default, wrote Samp;P.
Samp;P is also lowering its issue-level ratings on the companys senior subordinated notes to CCC- from CCC.
The recovery rating remains 2, indicating our expectation for substantial (70% to 90%, at the high end of the range) recovery in the event of a payment default, wrote the ratings agency.
As part of the agreement, the company would refinance its credit agreements. The company terminated the master waiver agreement that was in place and entered into an amendment with the senior secured lenders to provide covenant relief.
The amended credit facility extends the previously provided covenant relief and requires the company to provide a commitment letter for a refinancing of the operating company on or before June 30, 2015.
The company expects to refinance or further extend the senior credit facility by July 15 in order to comply with covenants, and also plans to refinance its subordinated notes.
Despite an improvement in earnings before interest taxes, depreciation and amortization (ebitda) in its recently reported Q1 results, “challenges reflected in ASGs business risk profile include the companys narrow product focus and participation in the commodity-oriented, highly regulated, and somewhat volatile commercial fishing industry”, wrote the ratings agency.
In Q1, American Seafoods saw ebitda increase 14% year-on-year, to $22.3m.
However, the “operating performance is subject to supply-and-demand vagaries related to its products, variable catch volumes, and worldwide pricing movements that can affect financial performance”, wrote Samp;P.
“We believe the companys leverage is very high and increasing, and cash flow-to-debt metrics are thin. We estimate the ratio of adjusted total debt to ebitda of over 9x for the 12 months ended March 31, 2015. Increases in leverage reflect ASGs contracted ebitda and highly leveraged capital structure,” according to Samp;P.
The holders of the PIK notes — securities whose interest can be paid with additional securities rather than cash — are more inclined to accept less than what they are owed “because of the perceived risk that ASG may not fulfill its original obligations”, states Samp;P.
American Seafoods Group’s total outstanding debt was $675.3m as of March 31, according to the Q1 results. The total outstanding debt of American Seafoods Group Consolidated, owner of American Seafoods Group, is $906.8m, as of March 31.
“That deal with the junior debt holders would reduce the debt burden on American Seafoods, and may set the stage for further financial restructuring or a change in the ownership structure,” states the Seattle Times.
Owners of American Seafoods’ senior debts, which total more than $600m, would likely recover 90% or more of their money even in a bankruptcy, so they are less motivated to settle for only a portion of what they’re owed, reports the Seattle Times.
Link to Rokke
The fire of speculation over Rokke making a return to invest in American Seafoods has been fueled by the announcement that Muri has left his role as CEO of Aker BioMarine, the krill harvesting business owned by the group.
According to the press release, Muri will go on to pursue other projects within the Aker group.
I’m extremely grateful for the work Hallvard has done for Aker BioMarine and I’m happy that he will continue to be a part of Aker going forward, said Rokke.
In early April, sources told Undercurrent a possible investment in American Seafoods involving Rokke could be done partly through Converto Capital, a vehicle which controls Aker investments in companies around the world.
Private equity firm Bregal Partners was also involved in the re-financing talks, according to a proposal dated Feb. 13. This ultimately did not pan out, but the firm was still thought to be involved as of March 25, sources told Undercurrent.
American Seafoods remains in talks, with the help of advisory firm Blackstone, to re-finance a part of its debt, the company told those on its Q1 bondholder conference call in early June.
Bodal told Undercurrent in late March he plans to stay on as CEO, regardless of what happens with the refinancing talks.
Although Rokke is not an American citizen and can only own 25% of US quotas — a factor which ultimately caused his exit from American Seafoods — his son Kristian is.
Last March, when Kristian stood down as CEO of the Aker Philadelphia Shipyard, there was industry speculation this could lead to a Rokke return to American Seafoods at some point. Kristian is now chairman of the shipyard.
There has been a recent wave of foreign investment in US fishing assets, despite the 25% cap, with both the Canadian Cooke family and South Africas Oceana moving for deals, for Wanchese Fish Company and Daybrook Fisheries, respectively.