Embattled franchisor Retail Food Group (RFG) has announced a $150m institutional placement in order to raise $150m in much-needed capital. The RFG capital raising strategy follows a series of announcements indicating the company would tap shareholders for investment in efforts to curb its approximately $260m of debt.
After requesting a trading halt early on Friday, RFG released the details of the new institutional placement, alongside a presentation to investors around the debt restructuring process.
By definition, an institutional placement is a capital-raising tool, whereby a listed company can issue equity shares to a qualified institutional buyer. RFG is specifically targeting ‘sophisticated and professional’ investors, a term used to describe investors with net assets above $2.5m, holding a Qualified Accountant’s Certificate who are able to evaluate an opportunity without a prospectus or disclosure document.
According to RFG, approximately 1,500 million ordinary shares are set to be up for grabs at a price of $0.10 per share, totalling $150m. Additionally, the beleaguered franchisor also intends to offer a Share Purchase Plan (SSP) at the same price, to raise a further $10m before costs.
“Net proceeds of the Placement and SPP (together the Offer) will primarily be used to pay down debt and provide working capital to stabilise the business and support the company’s turnaround plan,” RFG said in an ASX statement released on Friday.
Petra Capital and Shaw and Partners have been announced as joint lead managers and joint bookrunners to the placement, with Aitken Murray Capital Partners acting as co-lead manager.
RFG capital raising initiatives
The equity raising forms part of a wider RFG capital raising plan.
The company’s senior lenders have reportedly entered into a binding commitment letter and term sheet, by which they agree to write-off $71.8m of existing senior debt, in addition to providing a new $75.5m term loan facility maturing in November 2022 to refinance existing debt.
While the lenders have agreed to extend the existing facilities until 28 February 2020, it is subject to various conditions, including receipt of $118.5m of proceeds from the offer to be applied in partial repayment of the senior debt.
In Friday’s announcement, RFG also outlined a series of franchisee-focused objectives.
According to the investor presentation, RFG intends on stabilising store numbers through operational improvements to drive franchisee profitability, targeting an additional $30m gross margin generation at the franchisee level from current initiatives.
In a strong show of confidence, the chain also went on to announce its FY20 underlying EBITDA guidance.
“The company is pleased to announce FY20 underlying EBITDA guidance in the range of $42.0 – $46.0m, assuming full year contributions from all contributing business units, but excluding the impact of AASB15 and AASB16,” the company said.
RFG concerns
The new RFG capital raising initiative has been a long time coming for the Gloria Jeans and Donut King franchisor.
After FY19’s $185.3m in impairments and provisioning was revealed, the company slumped to a $150m loss, taking the net debt to $260m at June 30.
Ongoing discussions with Soliton Partners indicated that investment may have been on the way, however, an ASIC investigation on whether the food franchisor had jumped the gun threatened to derail the deal.
In the aftermath, the company said talks were ongoing, whether indicated that tapping shareholders was not off the table. Friday’s ASX announcement confirms the embattled franchisor’s fate is firmly in the hands of investors.