Cooke Omega bonds sag on 2Q18 earnings decline after poor fishing season

Cooke Omega bonds sank after the company circulated 2Q18 earnings to investors last week, including a 30% year-over-year EBITDA drop, according to three sources familiar with the situation. The privately owned fish products and aquaculture company attributed the YoY drop in EBITDA and sales to a bad fishing season, they said.

The company’s USD 330m 8.5% senior secured notes due 2022 dropped two points after the earnings were released last Tuesday, trading at 99.75 to yield 8.565%, according to MarketAxess. They clawed back a point and last traded at par on 15 August.

The company reported USD 13m of EBITDA for the second quarter, versus USD 18.7m in the prior-year quarter, and a 12% drop sequentially from 1Q18, the sources said. Management credited the year-over-year crash to lower fish catch and production volumes for the 2017 fishing season, the sources added.

Cooke Omega generated USD 75m of sales in 2Q18, down 20% year-over-year, but up 5% from 1Q18.

Sales in its animal nutrition segment were down 23% YoY driven by lower inventory as a result of 2017 lower fish catch/yield and contract timing. Its other segment, human nutrition, booked a sales decline of 17%, driven by decline in coconut oil sales and the delisting of a home shopping network product.

The company had drawn USD 30m under its USD 100m ABL revolver due 2022 as of quarter end, and has USD 9.6m in cash on its balance sheet, according to sources.

Leverage is about 7x, based on USD 349m of total debt and around USD 49.8 of LTM EBITDA, or 6.8x net of USD 9.6m in cash, sources estimated. When the bonds were placed in December 2017, the company was levered 5.3x based on USD 60m of LTM adjusted EBITDA.

The company was formed in late 2017 when privately owned Cooke acquired Omega Protein, tapping the market for the five-year secured notes offering to fund acquisition. The BMO-led deal struggled in syndication, and eventually priced at an 8.5% coupon, with an OID of 97.058 for a 9.25% yield. To get the deal over the line, the borrower made investor-friendly changes including a reduced maturity and non-call period, a reduced credit facility carveout and tighter restricted payments and permitted liens covenants.

Cooke is on a trajectory implying annual cash burn in the neighborhood of USD 15m, as lower capital expenditure is offset by the EBITDA drop, according to one of the sources. The company expects to return to a historical capital expenditure level of around USD 35m this year – down from around USD 47m in 2017 due to a vessel refurbishment program – and has annual debt service around USD 29m, compared to its USD 50m in LTM EBITDA.

Cooke Omega did not respond to requests for comment.

2018 Debtwire

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