TRIS Rating Says: Investment in Red Lobster Has No Immediate Impact on

TRIS Rating has seen no immediate impact on the ratings of Thai Union Group PLC (TU) from its investment in Red Lobster, a leading casual dining seafood restaurant in North America.

On 12 October 2016, TU announced it has completed an investment in Red Lobster Master Holding, L.P. (Red Lobster), at a total cost of US$575 million (equivalent to Bt20,194 million). Red Lobster is owned by Golden Gate Private Equity, Inc. and its affiliated companies (Golden Gate). The investment comprises US$230 million for a 25% equity stake and US$345 million in 10-years convertible preferred shares. The preferred shares can be converted at any time into an additional 24% equity stake or redeemed at an agreed amount at the end of 10 years.

Red Lobster is one of the leading casual dining seafood restaurants in North America. It owns and operates 704 outlets in North America and 50 outlets internationally through franchisees. TU has a long-term relationship with Red Lobster as a major supplier for more than 20 years. According to TU, Red Lobster’s sales were US$2,479 million for the last 12 months ended August 2016. Adjusted earnings before interest, tax, depreciation, and amortization (Adjusted EBITDA) were US$144 million during the same period. After strategic stake acquisition, Golden Gate, the seller, will retain operational and management control over the Red Lobster, while TU will nominate two directors to the seven-member board.

The transaction represents 17.7% of TU’s assets, based on the company’s consolidated financial statements ending 30 June 2016. This investment is in line with TU’s long-term strategy to enter into food service industry, allowing the company to have forward integration, obtaining direct access to consumers. TU will receive a return of 8% per annum on the convertible preferred shares, or about US$22 million after tax (equivalent to Bt770 million) annually. Moreover, TU believes the investment will build on its existing business relationship with Red Lobster. TU has long been supplied seafood worth more than US$50 million per year to Red Lobster. The 25% equity stake in Red Lobster could produce equity income or dividend for TU if Red Lobster can achieve operational improvements it has planned.

The investment will modestly weaken TU’s financial profile in the short term since this transaction is 100% debt-funded. Total debt to capitalization ratio will rise from 44% as of 30 June 2016 to 55% post investment. However, TRIS Rating expects TU will gradually manage its debt to capitalization to fall below the company’s stated policy of 50% and improve its cash flow protection in the intermediate term.

TRIS Rating currently assigns ratings of “AA-” to the company rating of TU and to the company’s outstanding senior unsecured debentures, along with a “stable” outlook.-- End

TRIS Rating Co., Ltd./www.trisrating.com

Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand

? Copyright 2016, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution, or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited, without the prior written permission of TRIS Rating Co., Ltd. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.

TRIS Rating Says: Investment in Red Lobster Has No Immediate Impact on Ratings of “TU”