Britain's biggest food group Premier Foods won an extra three-month grace period from its lenders on Monday as it secured a deal whereby its banks agreed to defer a financial covenant test to the end of March 2012.
The group, whose brands include Ambrosia, Batchelor's, Hovis and Mr. Kipling is struggling with hefty debts of 1.3 billion pounds ($2.1 billion) after an acquisition spree and feeling the squeeze of a sharp rise in commodity costs and weak consumer demand in Britain.
The deferral now gives Premier until March 31 to meet its covenant test instead of December 31, 2011 previously. It said the deal forms part of its talks about longer term refinancing and also confirms ongoing bank support for the business.
Premier is paying an extra 1.2 million pounds for the three-month waiver on the covenant test which calls for a net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) ratio of below 3.9 times.
Chief Executive Michael Clarke, who joined from U.S. food group Kraft Foods in mid-August, welcomed the deal and said in a statement; This is an important step towards securing a longer term financial foundation for the business.
Premier is looking to sell off some branded businesses such as Branston Pickle and Hartley's jam as well as its private-label business to focus instead on eight key brands -- Ambrosia, Batchelor's, Bisto, Hovis, Loyd Grossman, Mr. Kipling, Oxo and Sharwood's.
Premier shares closed up 10 percent at 3.7 pence, to value the group at around 105 million pounds.
($1 = 0.624 British pounds)
(Reporting by David Jones; Editing by Greg Mahlich)