Primary High Yield: Shearer’s Foods Unsecured Notes Due 2032 Include High-Water Mark Provisions, 90% Threshold for Fundamental Changes, Other Aggressive Terms

Legal Research: Rebecca DeLong Relevant Items: Unsecured Notes Due 2032 Primary Covenant Analysis Preliminary Offering Memorandum Shearer’s Foods is issuing senior notes due 2032 (the “2032s”), to be issued by subsidiary entity Fiesta Purchaser Inc. (the “Issuer”). The proceeds of the bonds will be used to fund a cash distribution to the Issuer’s indirect parent to redeem partnership interests of such indirect parent. Price talk is 9.75% to 10%. The covenant package for the 2032s contains a number of aggressive terms and provides the Issuer with substantial flexibility to engage in creditor adverse actions. The covenant package features a “high-water mark” provision that allows the fixed component of EBITDA-based grower baskets to be permanently increased to match the highest level reached by the grower component. Further, only 90% of affected holders are required to consent to “fundamental matters” amendments (whereas almost all U.S. high-yield notes require consent of all affected noteholders for such changes). In addition, the restricted payments covenant includes a leverage-based investment basket with a number of aggressive features and does not include any conditions on access to the builder basket. We have completed a comprehensive analysis of the covenant package relating to Shearer’s Foods senior notes due[...]