CTI Foods Holdings

About

Headquartered in Wilder, Idaho, CTI Foods Holding Co., LLC (“CTI”) manufactures food products through its subsidiaries primarily for the quick service restaurant industry. CTI’s principal products include pre-cooked taco meat, steak and chicken fajita meat, pre-cooked and uncooked hamburger patties, soups, pepperoni, sausages, sauces and dehydrated beans. CTI was purchased by Thomas H. Lee Partners and Goldman Sachs Merchant Banking Division in May 2013 for approximately $690 million. During the twelve-month period ended September 30, 2018, the company generated approximately $1.2 billion of revenue.-Moody’s

It has seven food processing facilities and has over 1,700 employees at its California, Idaho, Iowa, Kentucky, Pennsylvania, and Texas locations.

Corporate Highlights

5/7/2019: Emerges from Chapter 11.

US-based custom foodservice manufacturer CTI Foods has completed its financial restructuring and successfully emerged from Chapter 11. The company, which has reduced more than $400m of debt, moves forward with about $110m of committed exit financing from a new ABL facility.

3/12/2019: Files Chapter 11

CTI Foods reached an agreement with the majority of its lenders on a comprehensive balance sheet that will reduce its debt by more than $400 million.

“With the support of our lenders and equity sponsors, we are taking this positive and strategic step forward that will allow us to improve our capital structure and reduce our debt on an expedited basis while continuing to provide customers the custom food solutions and services they expect from CTI,” said Mike Buccheri, president and CEO of CTI. Buccheri was name to his position on March 11.

Along with the restructuring plan, CTI received $155 million in debtor-in-posession (“DIP”) financing from its lenders. If the court approves it, the company will use the financing to pay down existing debt and fund ongoing operations for the Chapter 11 case.

BDC Credit Reporter View

6/10/2019: CTI Foods has gone into and exited bankruptcy in a short period, losing $400mn of debt along the way. We’re still digging into what the differences between the pre and post balance sheets look like. However, it’s clear that the $28mn at cost in second lien debt held by 3 BDCs will be written off, resulting in a Realized Loss in the IIQ 2019 results. The biggest impact will be on FSK, whose $23mn in the debt was already written off by (93%) as of IQ 2019. Too early for a conclusive post mortem, especially as the DIP financing provided by several BDC lenders may have been rolled into a post Chapter 11 facility. Still, as the Investment Highlights section shows, this company has been under-performing since IIQ 2017 and in serious jeopardy from the IIQ 2018, before going on non accrual in the IVQ 2018. However, the BDC valuation – as is often the case when we look at these deals in hindsight – was slow to reflect the growing risks. Even in a quarter where Moody’s downgraded the Company to speculative (Caa2), the BDCs involved only wrote down the debt on an unrealized basis  by a fifth. At the end, less than a year later, the actual loss looks to be five times as high. We’ll have to wait till the IIQ 2019 portfolio disclosures come out to see what future BDC exposure looks like. In the interim, we have upgraded the Company to CCR 4.

Highlights

5/7/2019: Exits Chapter 11 with new ABL Revolver. Upgraded to CCR 4. Awaiting further details on status of prior debt and DIP.

IQ 2019: Company in Chapter 11. $28mn in second lien debt written down 92%.

BDC lenders participate in DIP financing for $4mn at cost.

IVQ 2018: Downgraded to CCR 5 on non accrual. BDC exposure $6.6mn in first and second lien debt.

IIQ 2018: Downgraded to CCR 4 on valuation concerns. BDC lenders value second lien at (19%-23%) discount.

5/8/2018: Moody’s downgrades Company to Caa2. Outlook Negative.

IIQ 2017: With 3 BDC lenders and aggregate exposure of $31.4mn in second lien debt, placed on Watch List as CCR 3.

IIQ 2013: First of current lenders invest in 2021 Term Loan – CCT (now FSK).

IIQ 2010: First BDC exposure to Company.