Premier Foods plc has completed the restructuring of its interest rate swap portfolio, in line with its financial strategy announced in August.
“The restructuring achieves de-risking by considerably shortening the maturity of the portfolio, removing early termination options and eliminating the volatility of the digital swaps,” the company said in a statement. The cost of the restructured swaps is a gross cost of GBP167m (US$263m) in line with the current mark to market.
Go deeper with GlobalData
The company said it has agreed a settlement profile of this amount between now and 2013 which it believes is affordable given its strong cash generation.
Under the existing swap portfolio certain of Premier’s swaps had maturities extending to 2037 and a portion of the portfolio had the effect that, as interest rates fell, the interest cost of that portion increased without any offsetting reduction in the cost of the company’s bank debt.
The company explained that the swaps therefore created an unhedged exposure to certain interest rate movements which could have cost the company up to GBP450m. In return for agreeing to pay the current mark to market cost of GBP167m, the restructuring removes this risk.
The crystallised mark to market will be settled between now and 2013 when the bank facility is due for renewal. Accordingly, £8m will be paid in 2010, £33m will be paid in 2012 and the remaining £79m will be become due at the end of 2013 and, in effect, will be refinanced at that time.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalData“The de-risking achieved through the restructuring now facilitates the company’s seeking a credit rating which, in turn opens up the possibility of raising funds in the bond market. The company intends to investigate this avenue as part of its strategy of diversifying its sources and maturities of funding,” the statement added.
Jim Smart, chief financial officer said: “The restructuring of the swap portfolio is an important step in delivering a more stable financial structure. Its successful completion removes a considerable amount of financial risk and volatility from our balance sheet. This, together with the pensions change announced in August 2010, achieves substantial progress towards the de-risking objective of our financial strategy and opens the way to diversifying our sources of funding.”
