The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

AML Foods is aiming to slash its annual debt servicing costs by more than $220,000 via the refinancing of its existing $17.75 million preference share debt, its chairman confirmed yesterday.

The BISX-listed food retail and franchise group, which operates brands including Solomon’s SuperCentre and Domino’s Pizza, is looking to cut the yield on its preference shares by 1.25 percentage points - from 7.25 per cent to 6 per cent.

Dionisio D’Aguilar told Tribune Business that AML Foods was following other BISX-listed companies, particularly Arawak Port Development Company (APD) and Cable Bahamas, in seeking to exploit the current ‘low interest rate’ environment.

He said the group’s improving financial performance, and well-established market position, meant it could “command a lower rate” and yield on its preference shares.

Gavin Watchorn, AML Foods’ chief executive, also confirmed that the $17.75 million Class C preference share issue, which launched on Monday, was a “refinancing” of the existing debt on its books.

The company is anticipating that most, if not all, its existing preference shareholders will opt to ‘roll over’ their investments into the new Class C issue despite the returns being lower.

However, Mr D’Aguilar said the interest yield was still attractive for investors, given the 1-2 per cent interest rates on offer from the commercial banks.

“It was 7.25 per cent, and we’re taking it down to 6 per cent,”he told Tribune Business. “We’re reducing it to take advantage of the low interest rates.

“Most people are getting 1-2 per cent at the bank, and we still think it’s an attractive investment........ We think the market can bear it, and can accept the fact and be interested in preference shares paying a lower rate.

“We’re an established, long-serving and growing company, and feel we can command a lower rate on our preference shares.”

The path to AML Foods’ refinancing was smoothed by APD, which last year successfully placed a preference share issue at a rate of just 5.5 per cent.

Its summer 2013 offering, despite providing the “most competitive rate” in Bahamian capital markets history, was 71 per cent oversubscribed at $36 million. The target was $21 million.

Cable Bahamas then followed suit, saving hundreds of thousands of dollars in annual debt servicing costs via redemption of its $60 million Series 4 and Series 5 preference shares, which carried interest coupons of 8 per cent.

These were replaced by $80 million in Series 6 preference shares, which had a much lower interest coupon of 5.75 -6 per cent.

AML Foods is thus following a trend established by other BISX-listed companies, and calculations by Tribune Business suggest it could slash its annual preference share interest/debt servicing costs by almost $222,000.

This, in turn, will boost the group’s cash flow, lower its cost of capital and enable it to deploy excess cash into its business operations via investments.

“It’s just prudent for our shareholders that we try to get the best rate,” Mr D’Aguilar told Tribune Business.

“We locked in 7.25 per cent 12-24 months ago, and can certainly get a better rate given that most people are getting 1-2 per cent in the bank.:”

Mr D’Aguilar expressed optimism that all existing preference shareholders would roll over 100 per cent of their investments into the Class C instruments, adding that their counterparts - plus new investors - would likely pick up any shares not subscribed for.

“We just had to be comfortable,” he told Tribune Business. “We just wanted our long-standing preference shareholders, who have been there with us through thick and thin, to remain happy with the yield. Once we were comfortable that they were comfortable, we proceeded.”

The AML Foods chairman said the group was still “conservative” when it came to choosing the 6 per cent rate, electing not to go as low as APD or Cable Bahamas for fear this might turn investors away when they needed them most.

“We think it’s a fairly good rate and wanted to keep our preference shareholders happy,” Mr D’Aguilar told Tribune Business.

“You need to keep your lines of credit open to step into the breach when you need them. If you go too low, and people are unhappy with the yield they are getting, they’re not as likely to step up to the plate when you need them.”

The offering is a private placement, and members of the Bahamian public should not apply for shares. It is being placed by Providence Advisors.