Anchorage Capital Group ‘in the mix’ for Freedom Foods

A convertible bond is one way the company can get around any additional equity that is secured being spent on the funding of a class action.

Anchorage Capital Group and Sixth Street Partners are understood to be among the funds lining up to recapitalise Freedom Foods, according to sources.

The private equity firms are understood be among about four that are competing to recapitalise the producer of dairy, cereal and plant-based products, with another understood to be Oaktree Capital Management, as first tipped by DataRoom.

Working for Freedom Foods is advisory firm Moelis and law firm Arnold Bloch Leibler.

PwC and Ashurst have also been aiding the company.

Freedom Foods announced accounting irregularities relating to out-of-date stock in the middle of the year, sending its shares more than 20 per cent lower before they were halted.

The company’s shares are yet to trade since it suddenly announced the departure of key management staff.

The dairy and cereal producer, which is backed by the wealthy Perich family, is in need of about $200m and the company has reached a standstill agreement with its lenders.

Advisers have been running a dual track process to determine whether the company is better off embarking on an equity raising or securing additional funds through a convertible debt instrument.

Earlier, Freedom Foods had been in the process of selecting an investment bank for a potential capital raising, but the understanding is that a capital raising through the equity market appears increasingly challenging with a class action looming.

A convertible bond is one way the company can get around any additional equity that is secured being spent on the funding of a class action.

Some believe that a recapitalisation of Freedom Foods could include various solutions, which may be the sale of a division, funding provided by a special situations fund and even a sale and leaseback of some facilities to a real estate group such as Charter Hall.

Freedom Foods produces its UHT dairy products in a factory in Shepparton and it also has an operation based in Ingleburn, where its plant-based products are produced.

The situation is among a number being worked on in the Australian market by restructuring advisers.

On Thursday, the Australian-listed printing and integrated marketing company Ovato announced a restructure where it would launch a $40m rights issue to remain solvent, in what is being pitched as the start of further Chapter 11-style bankruptcies in Australia ahead of possible law changes to make such deals easier to occur.

Of the equity raising, $35m would be underwritten by the company’s major shareholder, the Hannan family, and Mercury Capital.

Working on the capital raising is KordaMentha, while law firm Ashurst is advising the company and McGrathNicol is advising on the independent experts report.

The funds raised will provide additional liquidity, repay debt to lenders, including ANZ Bank, Scottish Pacific and German equipment financiers, and for operating initiatives.

Retail bondholders are owed $40m by the company, and Ovato said on Thursday that the holders of secured fixed interest notes would be asked to partake in a debt for equity swap.