Cooke Omega bonds dipped this week after the company reported surplus inventory resulting from Chinese tariffs on fishmeal imports, according to two sources familiar with the matter.

The privately owned fish products and aquaculture company’s USD 330m 8.5% senior secured notes due 2022 ticked down yesterday (15 November) to 98.375 to yield 8.982% from 99.75 on 2 October, according to MarketAxess.

On a 3Q18 earnings call on Wednesday, management attributed the company’s 20,000 tons of extra inventory to the retaliatory 25% trade tariffs set by China in August, one of the sources said.

The tariffs have priced the company out from selling to some of its Chinese customers, sources said, adding that the company said it is seeking to work out ways to share the cost with those clients as well as searching for new clients outside of China.

The company’s operations require a harvest, which consists of angling for various types of fish and shrimp, typically during the second and third quarters. The higher the catch, the greater the supply the company has to offer its customers and the greater its top-line growth, sources said.

For 3Q18, the company reported USD 17.9m of adjusted EBITDA, up 85% from USD 9.7m year-over-year and up 38% sequentially, driven by a strong fish catch. Revenue also increased 3% year on year to 92.9m, up 24% from last quarter, the two sources and one additional source said.

Sales in Cooke’s animal nutrition segment were up 18% YoY to USD 68m, driven by the good harvest. Its other segment, human nutrition, booked a sales decline of 24% to USD 25m, driven by lower coconut oil sales, the two sources said.

Cooke’s capex for the quarter came to USD 7.8m. Annualized, that puts the company below its historical capex levels of USD 35m and its 2017 level of roughly USD 47m, sources said. SG&A costs for the quarter also decreased to USD 6.9m from USD 11.6m year on year.

On a run-rate basis, the company’s has negative free cash flow of USD 4m, based on around USD 56m of LTM EBITDA, an estimated USD 29m of annual interest expense and an annualized USD 31m of capex, sources noted.

At quarter end, the company had drawn USD 26m under its USD 100m ABL revolver due 2022. It has USD 1.1m in cash on its balance sheet. Based on USD 356m of total debt, the company is levered around 6.3x.

The company did not respond to a request for comment.

2018 Debtwire