Riccardo Maggi Novaretti, Paul Hastings

Announced in November 2020, Paul Hastings represented Boparan Holdings Limited in connection with refinancing through issuance of £475m of senior notes, issued by Boparan Finance plc.

Paul Hastings also assisted Boparan as borrower in connection with its £90m super senior revolving credit facility (RCF). The bonds are governed by New York law and the RCF by English law, with Paul Hastings advising on English and US law.

Boparan is the parent company for 2 Sisters Food Group and is a leading food manufacturer with strong market positions in poultry, meals and bakery categories. The company has its headquarters in Birmingham. As the UK’s largest chicken producer, 2 Sisters accounts for about seven million of the 20 million chickens produced in the UK each week, supplying household names from Tesco to KFC.

London finance partner Peter Schwartz led the deal with support from lead senior associate Riccardo Maggi Novaretti. Novaretti joined the firm in October 2018, having qualified in Italy in 2015 and in New York in 2018.

“I have mainly worked on high yield debt offerings, other international capital markets transactions and IPOs. I particularly enjoy high yield work with emerging markets businesses. These often present unexpected difficulties, involve tough negotiation and require sensitivity to the local financial, regulatory and business environment. This makes them interesting and varied, and a great learning opportunity at the junior and mid-level. I also enjoy working on debut issuance, where aspects of the legal requirements may be novel to the issuer, and we need to explain why we are seemingly pedantic over certain things,” Novaretti says.

“This was the first deal I have done since joining Paul Hastings where we were on the issuer side. Therefore, the interaction with the company stands out. I relished building a good relationship with the corporate and legal teams, working together on a daily basis for several months.”

The major challenge with this deal was the extreme financial stress under which the company was operating and the compressed timeframe in which it needed to improve its financial position. The March 2021 maturity of the existing senior notes was a financial impossibility, making the refinancing a must-do for the business to avoid a restructuring process.

The existing senior notes had a triple C credit rating, at the lowest end for junk bonds. In March 2020 they were trading at 69p on the pound after the company’s Welsh factory suffered a coronavirus outbreak, part of a global pattern of such outbreaks in meat processing plants.

As reported by the Financial Times in July 2020: “For 2 Sisters…. the outbreak has been particularly sensitive. It came on top of renewed fears about the financial vulnerability of the indebted group of companies run by Ranjit Singh Boparan, nicknamed the ‘chicken king’”.

Market sentiment was that the coronavirus crisis might fatally undermine the crucial refinancing of the existing senior notes before the company could finish executing its turnaround plan, which involved focusing on the core poultry business and selling off certain other non-core assets, including Fox’s Biscuits.

Schwartz has been representing Boparan for more than 12 years, including at his previous firm. Paul Hastings has retained the client relationship for more than seven years. The most recent financing is the culmination of a three-year group refinancing effort where Paul Hastings has been integral throughout. This has included bridge financing for the sale of assets, the redemption of Boparan’s £250m 5.25 per cent senior notes due 2019 and the company’s RCF and an additional short-term loan, each of which have been repaid in connection with the 2020 financing.

The first obstacle to the deal was to create a bullet-proof legal structure for the refinancing which was affordable for the company, yet attractive to investors. Furthermore, this had to be executed before the existing bonds’ maturity date in March 2021.

A key feature of the transaction was the use of an unrestricted subsidiary structure, which Paul Hastings successfully argued was permitted by the existing bond indenture, despite bondholder objections. This complex financing structure requires technical legal excellence to execute it correctly. Indeed, the need to steer carefully in this area is evidenced by the firm’s subsequent representation of a committee of bondholders against McLaren, where Paul Hastings successfully blocked McLaren’s attempt to use an unrestricted subsidiary structure to raise new debt.

The longstanding client relationship added to the team’s ability to bring impactful business insight. As a particularly prominent example, certain provisions in the existing bond indenture required the company to use proceeds of asset sales either to repay its debt at par (which was too expensive) or to buy assets. Paul Hastings demonstrated that this need not be read narrowly to mean only capital assets (such as equipment or a new factory), as was suggested by the bondholders, but could be correctly legally interpreted as ‘assets on the balance sheet’. Therefore, it would include raw materials such as chicken feed – the most advantageous business position for Boparan.

Finally, the Paul Hastings team played a key role in guiding Boparan through this multi-party conversation. An additional layer of complexity was added by outstanding pension issues. The company first needed to reach an agreement with its pension trustees and The Pensions Regulator over available funds and the security package before it could come to an agreement with its banks and bondholders. There were also negotiations with the company’s shareholder, relating to the purchase of a portion of the new bonds. Paul Hastings’ innovative approach included putting together a working group to mock-up the likely interaction between the various parties and this became highly informative in terms of strategy for the Boparan board.

“The main challenge was to create a bullet-proof legal structure for the refinancing that worked for the business on a daily basis, yet was also attractive to investors and acceptable to the pensions regulator. This is where the team’s deep knowledge of the business was invaluable in finding a way through the negotiation process – knowing where to accept and where to reject proposals in a commercial and pragmatic way,” Novaretti says.

“Of the refinancing deals I have worked on, this deal presented the greatest necessity for the company to refinance. It was a ‘must-do’ for the business to avoid a restructuring process and there was a significant time constraint. It was also unusual for the time period when it was achieved – during the pandemic – especially from a disclosure perspective. It was one of the first deals I’ve worked on that had to address the risk of Covid-19 to the business, and many of the factors to consider were not immediately obvious or straightforward.”

Novaretti says the deal has developed his flexibility as an adviser in high yield debt offerings, making him more able to act on both sides for either the banks or the company. “Specifically, it has enabled me to create a productive relationship with a key client of the firm. More generally, the insight into effective negotiation strategies will be invaluable going forward, and I have also become more confident in my ability to collaborate seamlessly with my own team and with other law firms,” he adds.

“This was the first deal where I was the lead senior associate, allocating workstreams and managing a team of juniors. Hence it was an excellent learning experience, and I was delighted that the client commented on the cooperative culture of the team. It was clear that they valued our team being collaborative, responsive and a pleasure to work with even more than usual, given the demanding execution process,” Novaretti explains.

“I learned the importance of commercial awareness as well as technical legal expertise. Partner Peter Schwartz, in particular, was key to achieving a negotiation of debt covenants that balanced investor concerns with enough flexibility for the company to run the business effectively.”

The refinancing was critical in buying the company time to accelerate its turnaround plan and providing a platform for 2 Sisters to improve the profitability of its core poultry business. This deal, together with Paul Hastings’ representation of bondholders against McLaren, validates the team’s expertise to advise on the most cutting-edge high yield transactions – especially at the intersection between finance and restructuring.

The increased liquidity needs of companies around the world means that there are likely to be more issuers in the European leveraged finance market seeking legally correct yet flexible interpretations of their debt covenants. Paul Hastings is positioned to be a leading adviser in this evolving market given its experience operating on both sides of such deals. As a global firm with strength in the US and UK, this positioning is especially compelling for deals such as Boparan, which have an English and a New York law component.

Looking more widely, this deal is an example of the successful ‘product agnostic’ strategy employed by Paul Hastings to provide clients with flexible legal services across practice groups. In contrast to many of the more established City firms, which often tend towards working in silos, Paul Hastings offers clients a partner-led integrated model. In this deal, the firm drew on key capabilities from overlapping areas of loans, bonds, pensions and restructuring, providing collaborative advice.

Reflecting on the challenges presented by the Covid-19 pandemic, Novaretti says: “Personally, I felt we were as effective as a team as if we had been in the office. While some aspects of internal communication were slightly more difficult than usual – for example, not being able to walk into a partner’s office – our service to the client was unaffected. There has always been a degree of remote working culture embedded into our firm to enable travel etc., so the pandemic merely required an extension of this.”

However, he admits that it heightened the need for trust and good communication. “That trust, in particular, is vital for the type of work we do. It inevitably takes longer to build remotely, and it was undeniably a challenge for new team members to join without having met in person. Also, the junior-senior relationship is very important in providing a way for junior associates and trainees to ask questions or simply absorb by osmosis. I am enjoying being back in the office, indeed sharing an office, so that we can all learn from those around us.”