HKFoods: A step forward in extending the maturity of debts

Translation: Original comment published in Finnish on 06/10/2024 at 9:38 am EEST

 Based on the preliminary results, the company will be able to convert the majority (74 MEUR) of its current 90 MEUR bond into a new one, which would significantly strengthen the maturity structure of its debt financing. The fulfillment of the pricing condition is not yet known and will be announced by June 20. For the time being, we do not see a need for longer-term forecast changes based on the release.

A majority of the noteholders accepted the tender offer

HKFoods announced on Friday, June 6 at 6 pm preliminary results of the offer to repurchase its 90 MEUR bond (the loan expires on March 24, 2025). Based on the results, the majority of the financiers are prepared to accept the tender offer, which also enables the issuance of a new secured bond. The noteholders validly tendered for 73.7 MEUR and undertook to subscribe for the new bond. The critical condition for changing the negative pledge condition in the current bond was met with majority approval, which enables the issuance of a new secured bond. In addition, the pricing condition of the new loan must be met or HKFoods has to waive the condition. The company will notify of the final results and the fulfillment of the pricing condition by June 20 at the latest.

No significant changes to the forecasts

HKFoods offered to pay existing noteholders a premium relative to the nominal value of the loan and the market price (repurchase price 101.25 % relative to the nominal value), which served as a carrot to accept the offer and subscribe for a new loan. This results in small transactional costs for the company, which we have not considered in our forecasts. We estimate that the interest rate on the new bond is approximately 9% based on the changes in interest rate levels and benchmark bond indices relative to the date of issuance of HKFoods’ bond maturing in 2025 (fixed interest rate of the maturing bond is 5%). The increase in the loan's interest rate has already been considered in our forecasts in line with the above estimate, so we see no need for any longer-term forecast changes.

The new loan would clearly strengthen the financial situation

We have estimated HKFoods’ net debt to be approximately 147 MEUR at the end of 2024 or 53 MEUR excluding IFRS16 liabilities (lease liabilities). If the company can refinance 74 MEUR of the bond, it would probably enable the repayment of existing bank loans already in the near future. However, we have forecasted that the company will not be able to redeem its 26 MEUR hybrid loan (interest rate 16%/year) this year and we see no need to change this view for the time being. We forecast that the net debt/EBITDA ratio will be 2.9x at the end of 2024, i.e. rather high, and this also requires a continuation of the positive earnings turnaround in line with our forecasts.