Hart's Reynolds Group scrambles to cut debt
Graeme Hart's global packaging company, Reynolds Group Holdings, is scrambling to lower its debts after its net-assets deficit blew out to more than US$500 million ($617m) this year.
Reynolds plans to borrow up to US$600m under a trade receivables securitisation facility signed last week with BP Factoring and has drawn down US$540m, which will be used to repay loans.
Receivables securitisation is often used by large companies because funding costs are low. However, it is usually seen as a last resort and fell out of favour during the global financial crisis.
"It's a lower-quality way of raising cashflows," one packaging analyst said.
Reynolds is the world's largest packaging company after making a series of major acquisitions over the past six years, including Graham Packaging, which makes food wrap and plastic bottles; Pactiv, which makes garbage bags and takeaway food containers; and beverage-carton makers SIG and Evergreen Packaging.
Revenues are expected to exceed US$14 billion this year, beating those of rivals Amcor and Tetra Pak.
Hart, 57, is ranked by Forbes as New Zealand's richest man, with a net worth of US$5.7b. However, Reynolds Group, which is owned by his private company Rank, is heavily in debt. Rising finance costs have undermined earnings and savings from recent acquisitions.
Reynolds' earnings before interest, tax, depreciation and amortisation rose 50 per cent to US$1.9b for the nine months ended September, fuelled by the Graham Packaging acquisition last year.
But the company reported a US$102m net loss for the year to date after paying net finance costs of US$1.2b. This compares with a net loss of US$386m a year ago.
Reynolds' net-assets deficit rose to US$522m in the latest period, from US$457m at the end of December 2011.
Total borrowings of US$18.3b and total liabilities of US$23.1b exceeded total assets of US$22.5b.
Debt is split between bank loans and bonds, which are rated speculative or below investment grade by ratings agencies Standard & Poor's and Moody's Investors Service.
The group refinanced US$6 billion of debt in September, saving about US$70m in annualised interest costs, and plans to recall next month a € 450m, 7.75 per cent bond due to mature in 2016.
Chief executive Tom Degnan, who once ran Goodman Fielder and Burns Philp for Hart, told investors and analysts that the company would focus on repaying debt, improving operating performance and extracting the synergy benefits from Pactiv and Graham.
However, he did not rule out further acquisitions, saying the company was still looking for "bolt-ons".
"The group is in good shape. One of the real strengths of the Reynolds Group is the diversity of geography and product lines across the company," Degnan said.
"The cashflows we generate are steady and dependable. They come from products people consume every day [and] we're in both mature and growth markets with excellent share positions."
Hart is eventually expected to exit Reynolds through an initial public offer or trade sale after more than doubling the size of the business over the past few years.