AVONMORE Foods has raised $100 million (£60 million) in a debt issue on the American capital markets, with part of the proceeds being used to replace existing debt and the rest being used for expansion of existing operations.
Avommore secretary Mr Brendan Graham would not speculate on the likely use of the new long term funds, but chief executive Mr Pat O'Neill has previously indicated that, Avonmore is intent on spending some £100 million over the next couple of years expanding its meat operations in Ireland and the UK, and its dairy operations in the US and the UK.
Overall, the target is to reduce the proportion of total sales from the home market from 62 per cent to 45 per cent, and increase the proportion of sales from the US and the UK. Expanding the British liquid milk interests - where Avonmore currently has 8 per cent of the market is one of the most likely strategies.
The $100 million worth of preferred securities were placed with American institutions through a limited partnership vehicle which are extremely tax efficient, said Mr Graham.
The securities are redeemable in ten years time, but can be extended for a further ten years by mutual agreement.
While the two main ratings agencies, Moody's, and Standard and Poor's, have given the new Avonmore securities investment grade ratings, both agencies mix positive comments with strong reservations about Avonmore's prospects of improving its returns. This is mainly because of pressure of profit margins.
Moodys' analyst Mr Marc de Tracy said his rating reflects Avonmore's business diversity and its track record of profit growth. However, it also reflects Avonmore's exposure to commodity markets and its comparatively small size in an increasingly competitive food industry.
Moody's bases its rating on what it, describes as Avonmore's "high debt levels", which seems extraordinary given the group's expected end year gearing of less than 10 per cent and an interest cover of more than four times.
Moody's also drew attention to what it described as the "uncertain outlook" for the Irish beef and British liquid milk industries. "Moody's does not anticipate a substantial improvement in operating, because margin pressure will continue in some of Avonmore's large markets, such as red meat or UK liquid milk," the report states. It adds that Avonmore "does not hold strong franchises outside of its home market". S&P analysts Ms Adele Archer is not as negative about Avonmore's ability to grow and says S&P's investment grade rating reflects the group's "solid track record." She adds, however, that Avonmore's "ratings are constrained by the group's fairly low margin product portfolio and by highly competitive markets".
