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Graeme Hart seeks $2.46b to fund acquisitions

This country's richest man, Graeme Hart, wants to raise $US1.75 billion ($NZ2.46 billion) of new debt to help fund another round of consolidation of his global packaging empire, including the acquisition of Carter Holt Harvey's Whakatane Mill.If successfu

Duncan Bridgeman
Tue, 20 Apr 2010

This country’s richest man, Graeme Hart, wants to raise $US1.75 billion ($NZ2.46 billion) of new debt to help fund another round of consolidation of his global packaging empire, including the acquisition of Carter Holt Harvey’s Whakatane Mill.

If successful, Mr Hart’s Auckland-based Reynolds Group would boost its total indebtedness to $NZ8.37 billion against existing total assets of approximately $NZ8.24 billion.

Aside from the Whakatane paper mill, Reynolds Group Holdings also plans to buy the US-based Evergreen Packaging group of companies.

Mr Hart, whose personal fortune was valued at $5.5 billion in last year’s NBR Rich List, already owns both companies.

Evergreen manufactures fresh carton packaging systems for beverage products, primarily serving the juice and milk end markets.

The group was formed following Mr Hart’s acquisition of Evergreen Packaging and Blue Ridge Paper Products in 2007.

Leverage king

Mr Hart’s penchant for leveraged M&A deals is second to none.

In February 2008 he rolled over a $A1.6 billion leveraged loan, used to finance the $A2.7 billion acquisition of Reynolds in December 2007.

The refinancing came with an increased margin of 450 basis points.

Before the Reynolds deal he bought Carter Holt Harvey for $NZ3.3 billion, most of which was lent by his banks.

In accounts just published on its website, Reynolds reported a profit from continuing operations of just €11 million ($NZ20.9 million), but that was a sharp turnaround from a loss of €128.1 million in 2008.

Revenues of €2.82 billion ($NZ5.35 billion) were up 6% on the €2.67 billion in 2008 and more than three times the €808 million recorded in 2007.

Soaring debt poses risks

In its annual report Reynolds Group highlights that its substantial indebtedness creates risks for existing noteholders and for its debt servicing obligations.

At the end of December 2009 Reynolds Group had outstanding principal indebtedness of €3.103 billion ($NZ5.89 billion), including total term borrowings of €2.96 billion, more than double the €1.34 billion recorded as at December 2008.

Total equity in the business was €401 million compared to €485.1 million the previous year.

Reynolds has issued two tranches of notes worth €1.23 billion (issued in 2009) and €900 million (2007).

The group has €973.6 million of variable rate debt, exposed to short term interest rate movements.

The annual report notes the group’s indebtedness could make it more difficult to generate sufficient cash to satisfy its obligations with respect to the notes and its senior secured facilities.

“In the future, our cashflow and capital resources may not be sufficient to allow us to make payments of principal and interest on our debt.”

In that event, the group would be forced to reduce working capital capital expenditure, sell assets, seek additional equity or restructure some of the debt.

The acquisitions were expected to be finalised in May.

The new debt was expected to be guaranteed by Reynolds Group Holdings and certain of its subsidiaries as well as certain members of the Evergreen Packaging group of companies.

Duncan Bridgeman
Tue, 20 Apr 2010
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Graeme Hart seeks $2.46b to fund acquisitions
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