Nordic Capital Markets Forum seminar on Non Investment Grade Corporate Bonds in the Nordics Johan Wentzel, Partner 21.10.2013 1
Sentica Partners in Brief Independent Finnish private equity company focused purely on acquiring and developing Finnish small and midsized companies Sentica was founded in 2004 by a merger between two regional Finnish VC/growth investors Teknia and Sentia Management company owned by seven partners Investment team consisting of 14 employees and two senior advisors Local presence in Finland with offices in Helsinki, Tampere and Kuopio Manages a total of 300 million in three funds and is backed by well recognized Finnish and European institutions Current portfolio of 13 companies 2
Transaction Structure Frankis in brief Transaction structure Finland based group of companies engaged in the fast food franchise business, founded in 1987 Frakis Group (Issuer) Bond Issue EUR 30m The brand portfolio is dominated by two brands, Kotipizza with 284 restaurants and 55 Burger, Cola, Fries with 36 restaurants (12/2012) In terms of number of stores, Frankis Group has a market share of 34% in Finland Sales of approximately EUR 54.0m and an adjusted EBITDA of EUR 5.7m (11%) in 2012 The transaction Domipizza Sources and uses Frankis Finland Oy Foodstock Oy Francount Kotipizza Oyj Marketing co-operative Senhold 2 Oy Kotipizza OOO SPb LLC The bond proceeds were used to refinance existing bank debt and mezzanine debt, repay shareholders loans, pay transaction costs and for an increased cash position Issue oversubscribed and the book was closed in 7 hours Permitted to incur working capital financing amounting to EUR 1.0m Net debt/ebitda was approximately 4.6x at issuance Sources (EURm) Uses (EURm) Bond 30.0 Refinancing of bank debt 13.1 Refinancing of mezzanine 6.2 Repayment of shareholder loans 9.0 Transaction costs 0.7 Increased cash position 1.1 Total 30.0 Total 30.0 3
Bond Issue 2013/2016 Summary Comment Investor demand geographic split Presounding roadshow in Helsinki, Stockholm and Oslo Book closed after 7 hours More than 50 investors in the oversubscribed book Average order size of approximately EUR 0.6 million with the largest allocated order being EUR 3.0 million Overall project timetable from kick off to settlement 8 weeks 31% 10% 4% 55% Sweden Finland Other Norway Investors by segment 11% 89% Private wealth Institutions 4
Frankis Group Transaction Structure Issuer Instrument Volume Coupon Final Maturity Financial covenants Subsequent Issues Call Structure (American) Listing Lead Manager Governing Law Agent Frankis Group Oyj Senior unsecured bond loan Maximum EUR 30,000,000 8.00 p.a., semi annual interest payments in arrears 2 April 2016, 3 years after Issue Date at a price equal to 100.00% of par value Maintenance tests: Net Interest Bearing Debt to EBITDA < 5.50x Interest Coverage Ratio > 1.75x Incurrence tests: Net Interest Bearing Debt to EBITDA < 4.00x Interest Coverage Ratio > 2.25x Minimum cash position: EUR 2.0 million Negative pledge with carve out for EUR 1.0 million Change of control: put at 101% Not to distribute dividends exceeding 50% of previous year s net profit, subject to Incurrence Test being met Maximum total additional tap issues of EUR 15,000,000 subject to pro forma Incurrence Test being met @104.00% after 18 months, @103.00% after 24 months, @102.00% after 30 months The Issuer has committed to list the Bonds on NASDAQ OMX Stockholm within 1 year after the Issue Date Pareto Swedish Swedish Trustee AB
Bond vs. Bank Private Equity Point of View Bond Pros Bank Pros Leverage amount Flexibility terms Bullet structure Efficiency to the capital structure Private setup Direct path to negotiate and amend after issue Prepayment flexibility (at exit) Bond Cons Bank Cons Cemented terms and setup after issue Public reporting Listing Lack of experience what to expect Leverage ratio in some circumstances Typically more stringent terms and setup From Sentica s point of view stability of the underlying business has been a key criteria when contemplating the bond path Refinancing and in some cases growth financing not necessarily platform investment financing 6