TPG Is in Line for Big Payoff From Chobani Yogurt Rescue

  • Private equity firm set to make $350 million now, more to come
  • Yogurt maker has begun refinancing process to repay some loans

When Chobani LLC was running out of cash two years ago, TPG Capital handed the yogurt maker a much needed but expensive lifeline.

Now, Chobani is trying to extricate itself from an arrangement so onerous that its debt to TPG, which began as a $750 million loan, has ballooned to more than $900 million, with some of the highest rates in corporate credit markets.

This week, Chobani began a refinancing process that will help it repay some of TPG’s second-lien loan. Just two and a half years in, TPG stands to recoup about $350 million from its investment if Chobani’s debt sale goes through -- a return similar to what private equity firms derive from a buyout investment.

“The rescue loan did what it was supposed to do,” said Brian Weddington, an analyst at Moody’s Investors Service. “They will probably be hoping to grow fast enough to take out the entire second-lien.”

High Price

TPG is effectively charging about 13 percent on the loans. This includes an interest rate of about 5 percent plus an annual automatic increase of 8 percent on the size of the outstanding loan, according to people familiar with the terms who asked not to be identified as the information isn’t public. The firm also holds certain warrants that could be converted to a 20 percent equity stake in the company, the people said. 

For TPG, the deal is contributing to a rebound from the financial crisis, when it lost billions from bets on Caesars Entertainment Corp. and Washington Mutual Inc. The firm, which in May raised $10.5 billion for its first buyout fund since 2008, has recently struck deals to invest in computer-security business McAfee and cable provider RCN Telecom Services LLC and Grande Communications Networks LLC.

Chobani plans to repay about $280 million to TPG with proceeds of the new debt sale. That will still leave it owing more than $600 million that will continue to swell. With its new $650 million, seven-year term loan, Chobani is also looking to pay down $334 million on its bank credit line. It will replace it with a new $150 million undrawn revolver.

The company is proposing to pay about 5.5 percent on the new loan, a person with knowledge of the matter said. It’s being structured as a covenant-lite deal, which places limited restrictions on the company, the person said.

“We’re maximizing the strength of our business and taking advantage of attractive capital markets to refinance a portion of our capital structure," Michael Gonda, a spokesman for Chobani, said. "Once this is complete, it will further strengthen our financial foundation and balance sheet, and will increase liquidity to support our continued investment in future growth.”

A representative for TPG declined to comment.

TPG, founded by David Bonderman and Jim Coulter in 1992, oversees $70 billion in private equity holdings, credit assets, real estate and hedge funds. The firm’s main offices are in San Francisco and Fort Worth, Texas.

Growing Pains

Chobani was founded after Turkish immigrant Hamdi Ulukaya bought a defunct Kraft yogurt plant in upstate New York in 2005 and scaled $1 billion in sales within five years of hitting the market. But the company struggled to manage its rapid expansion and by 2013, hiccups in production, canceled orders from some of its customers and a product recall sent it barreling toward a liquidity crunch.

If the company is able to secure the financing, it will end up with $1.3 billion of debt on its balance sheet that would be roughly eight times a measure of its earnings, according to a report from S&P Global Ratings. But double digit revenue growth and cost savings should boost earnings enough to reduce its leverage to below seven times, credit rater said.

— With assistance by Craig Giammona, Sally Bakewell, and Devin Banerjee

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