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Hearthside Food unsecureds bring FA on board

Hearthside Food Solutions’ unsecured noteholders hired Perella Weinberg as financial advisor to assist in negotiations with company, according to three sources familiar with the matter. The mandate complements the retention of Paul Hastings as legal advisor, the sources continued.

The Illinois-based contract manufacturer of snacks, baked foods and sandwiches is proactively gearing up for talks with its secured lenders to refinance its upcoming maturities due 2025. The lenders, led by Gibson Dunn and PJT, have signed non-disclosure agreements to kick-start negotiations, noted the sources. Discussions could revolve around a loan paydown that would incentivize lenders to push out their holdings.

“It depends on how much money the company can get from the sponsor or asset sales to paydown the loan,” said one of the sources familiar.

The company has struggled to generate free cash flow since Charlesbank Capital and Partners Group teamed up to acquire Hearthside in 2018. The sponsors funded the original buyout with a USD 1.145bn Libor+ 368.75bps term loan due May 2025 and USD 350m 8.5% senior unsecured notes due 2026. To support subsequent acquisitions, Hearthside issued an incremental USD 515m L+ 400bps term loan as well as a USD 415m L+ 500bps term loan, both maturing the same day as the original loan.

S&P Global Ratings warned in May that it believes Hearthside’s capital structure is unsustainable thanks to rising interest cost and capex requirements that limit the company’s ability to generate free cash flow even if EBITDA increases. The business reported negative USD 154m FCF in fiscal 2022, according to Moody’s and S&P.

Further putting pressure on the credit, Hearthside came under fire in February when The New York Times alleged the company employed underage workers at its factories in Michigan, spurring the US Labor Department to open up an investigation. In response, Hearthside announced that it had engaged advisors to conduct an independent review of its employment practices and safety protocols.

Hearthside’s original term loan was last quoted 86.6/87.9 on Markit, while the USD 515m incremental is quoted 86.8/88 and the USD 415m is at 86.7/88.125. The illiquid USD 350m notes last traded in July at 40, according to MarketAxess.

Representatives for the company and the other advisors did not return requests for comment.