PAI Partners mulls IPO for R&R Ice Cream - sources

Thu Apr 3, 2014 1:24pm EDT

LONDON, April 3 (IFR) - PAI Partners is considering taking R&R Ice Cream public later this year, according to two of the ice cream manufacturer's bondholders.

"They're looking for an exit and they seem to be leaning towards an IPO," one of them said. "I don't see it happening until September or October though."

R&R was formed in 2007, after private equity firm Oaktree Capital merged Roncadin Ice Cream and Richmond Ice Cream. The company is based in Yorkshire in the UK.

PAI bought R&R, the maker of Fab lollies, from Oaktree last year, announcing the deal in April and closing it in June.

Unusually, PAI used a 253m payment-in-kind (PIK) toggle to finance the deal, a deeply subordinated instrument more commonly used to fund dividend distributions.

The PIK toggle allowed PAI to keep R&R's existing 350m 2017 senior secured bond in place, limiting the amount of new debt that had to be raised.

The Triple-C rated deal was issued in May 2013 with a 9.25% coupon. While the first and last coupons have to be paid in cash, the rest can be paid with more debt if the company is unable to pay the coupon.

Notably, the PIK has short call protection of just one year, meaning it is easier to repay the debt after its first year.

As a result, the second bondholder said, some investors have recently bought into PAI's PIK note in anticipation of the IPO.

"They're approaching an IPO and the PIK's well covered," he said, adding that it was more attractive than a newly issued PIK, which would have more volatility and a less certain exit.

The 2017 bond meanwhile has been callable since November 2013 at a cash price of 106.2813, although the call premium steps down to 104.1875 in November this year.

When R&R issued the PIK toggle in May, the company had reported full-year adjusted Ebitda of 100m in 2012. When further adjusted for an upcoming acquisition of Frederick's Ice Cream this figure climbed to 110m.

At the end of the third quarter of 2013, R&R's adjusted Ebitda stood at 91m, up 9m on the same period in 2012. (Reporting by Robert Smith; Editing by Alex Chambers, Marc Carnegie)