American Capital Strategies Ltd has invested US$8.5m in senior subordinated notes to recapitalize Petaluma Poultry Processors Inc. as part of an acquisition financing.

Petaluma management is participating in the transaction in the form of preferred equity. The senior lender is US Bank and the equity group is led by Vail, Colo.-based Booth Creek Management Corp.

Sonoma County, California-based Petaluma is an integrated producer, distributor and marketer of organic and natural fresh chicken meat. It was the first company to sell chicken with the US Department of Agriculture (USDA) certification for organic poultry, trademarked as Rosie the Organic Chicken. Sales increased significantly in 2001, consistent with the growth of the overall natural and organic food markets.

COO Ira Wagner said that the deal “is a mezzanine investment supporting an equity sponsor in a company producing a branded niche consumer product.

“While senior lenders continue to wait out the recession, we anticipate more opportunities to invest in strong middle market companies requiring access to capital.”

American Capital Principal John Thornton added: “Petaluma is the dominant west coast player in the rapidly growing and highly profitable organic chicken market. It is able to leverage significant barriers to entry to its market: Petaluma is among the few companies with USDA organic certification, distributes a broad product line of poultry products, and possesses the significant expertise required to raise birds organically and achieve acceptable yields.”