CORRECTED - UPDATE 3-Premier Foods to pay lenders for stress test delay
(Corrects quote in last paragraph to read "At least the balance sheet is now getting focus")
* To pay lending banks 4.9 mln pounds to delay covenant test
* Scraps 2008 interim dividend
* In continuing discussions with lenders
* Shares fall by as much as 18 percent
* Four-month to end-Oct sales up 9 percent
LONDON, Nov 18 (Reuters) - Britain's biggest food manufacturer Premier Foods (PFD.L) said on Tuesday it is paying its lenders a fee of 4.9 million pounds ($7.31 million) to postpone a key stress test of its bank loans.
The covenant test, which was due at the end of the year but will now take place three months later, comes as the company grapples with a 1.8 billion pound debt pile.
The maker of Hovis bread, Mr Kipling cakes, and Branston pickle also said it had decided not to pay the 2.2 pence per share interim dividend it announced to shareholders alongside its first-half results at the end of August.
Premier said it is reviewing a range of options to accelerate the reduction of its debt, which was built up as a result of the acquisitions of Campbell Soup Co's UK and Irish operations in 2006, and bakery group RHM the following year.
As part of the review, the group said it had entered into discussions with its lending banks, which it expects to continue into the first quarter of 2009.
"With the review ongoing, Premier and its lending banks have agreed that it would be appropriate to defer the date of the next covenant test from Dec 31 2008 to March 31, 2009," the company said in a statement.
However, Chief Executive Robert Schofield said Premier would have met its covenant test in December and is confident of passing the test next March. He said the decision to delay the test was taken following guidance from both the lending banks and Premier's advisers, Goldman Sachs.
"We have said all along that we would have passed that test and we're still of that view now. Our plans show that we will pass the test in March too," Schofield told reporters on a conference call.
Premier said it is reviewing a range of options to accelerate the reduction of its debt "in order to establish a more appropriate long-term capital structure given the fundamental change in the credit markets".
Schofield confirmed an article in the Sunday Telegraph which said United Biscuits (UB) had approached Premier over a possible offer for its Mr Kipling brand but said that, and other approaches, had not been pitched at a suitable level. He said Premier was no longer holding discussions with UB.
"I've had an approach from at least 20 companies for various parts of our portfolio. That (UB) is just one of them. None of them are valuing any part of our portfolio appropriately," Schofield told reporters.
However, he added that the company would consider non-core asset disposals when the market conditions are right.
"We have looked over the past 6-8 months at selling parts of our portfolio but, unfortunately, the marketplace has not been conducive to selling any assets at any price that we would entertain," he said.
Premier said sales in the four months to Oct 25 had risen by 9 percent as it managed to pass on input cost rises and achieve volume growth in its grocery division. A relaunch of Hovis was also well received.
Shares in Premier, which had already lost nearly 85 percent of their value since the start of the year on debt concerns and fears the company could breach banking covenants, initially fell by 18 percent but pegged that back to trade at 28.75 pence, down 5.7 percent at 1115 GMT.
Analysts at Citigroup said the fee to avoid the covenant test is "a clear marker that expensive banking negotiations lay ahead".
However, Investec analyst Martin Deboo said he viewed the statement positively. "At least the balance sheet is now getting focus and some sort of resolution feels imminent," he said.
(Reporting by Matthew Scuffham; Editing by Jon Loades-Carter and Erica Billingham)
