BERY - Berry Plastics Group

[thepupil]

Another $100mm debt redemption.

 

http://ir.berryglobal.com/node/12551/html

 

I see a total of $300mm for August. 3 separate 8-k’s on the 3rd,11th,21st. $100mm each all at 5 1/8.

 

I feel like they could be gearing up for a big refi that will cheapen / term out the debt load like some  3% of 2030 type of paper.

 

I’d be okay with them monetizing a little of the stock’s volatility and issuing a very low cost convertible, if the strike was sufficiently OTM

[BG2008]

Redeeming another $200mm of 6% debt, this is pretty incredible for a company to pay down the debt the way they are in a crazy year like this

 

https://ir.berryglobal.com/node/12561/html

[thepupil]

Redeeming another $200mm of 6% debt, this is pretty incredible for a company to pay down the debt the way they are in a crazy year like this

 

https://ir.berryglobal.com/node/12561/html

 

So you may already know this, but I was confused by this because I thought the 6%'s were already gone.

 

In actuality, Berry made a mistake and thought their 6% were callable at par in July, then realized they actually were callable at $101.5 until October 15th 2020.

 

So depending on whether or not you caught the correction / 8-K explaining the mistake, this does/doesn't represent new debt reduction.

 

I have $1.6B of 2nd priority bonds after the 6% of 2022 are gone, does everyone agree with that?

 

Item 8.01 Other Events.

On July 1, 2020, Berry Global, Inc. (“BGI”), a wholly owned subsidiary of Berry Global Group, Inc. (the “Company”), elected to redeem in full the $200 million aggregate principal amount remaining outstanding of its 6.00% Second Priority Senior Secured Notes due 2022 (the “Notes”) in accordance with the terms of the indenture governing the Notes. As specified in the Notice provided to the holders of the Notes, the Notes are called for redemption on July 31, 2020 (the “Redemption Date”). The redemption price for the Notes shall be equal to 100% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the Redemption Date. BGI intends to fund the redemption amount with cash on hand.

 

Item 9.01 Financial Statements and Exhibits.

This Amendment No. 1 on Form 8-K/A (this “Amendment”) is being filed by Berry Global Group, Inc. (the “Company”) to amend the Current Report on Form 8-K filed on July 1, 2020.

 

Item 8.01 Other Events.

On July 2, 2020, Berry Global, Inc. (“BGI”), a wholly owned subsidiary of Berry Global Group, Inc., notified the trustee under the indenture (the “Indenture”) governing its 6.00% Second Priority Senior Secured Notes due 2022 (the “Notes”) that the notice of redemption issued to holders of the Notes on July 1, 2020 (the “Redemption Notice”) incorrectly provided that the redemption price for the Notes would be equal to 100.000% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date. Pursuant to the terms of the Notes and the Indenture, the Notes cannot be redeemed for less than 101.500% of the aggregate principal amount thereof prior to October 15, 2020. Consequently, BGI has directed the trustee under the Indenture to cause notice to be issued to holders of the Notes that the Redemption Notice was invalid and has been rescinded by BGI.

[BG2008]

Thanks for pointing this out.  This is exactly the kind of feedback that makes CoB so useful.  Sometimes, you glance over things.  The CoB wolf pack watches out for each out.  Can we get matching tattoos Pupil.  I think "Bricks over Chicks" is so rad. 

[dwy000]

From the filing, it appears they aren't gone quite yet but will be on Oct 16th.  The indenture required a price of 101.5 until Oct 15th so they chose to delay the redemption a month to do it at par.  But they will be gone next month.  That was my read of it.

[dwy000]

From the filing, it appears they aren't gone quite yet but will be on Oct 16th.  The indenture required a price of 101.5 until Oct 15th so they chose to delay the redemption a month to do it at par.  But they will be gone next month.  That was my read of it.

 

The slight difference here being the actual debt outstanding at end of 3Q will include the bonds.  On a net basis (net of cash) it won't make a difference but the headline debt will still be there.  I don't think it affects any covenants.

[LC]

Somewhat related industry information:

 

https://www.cbc.ca/documentaries/the-passionate-eye/recycling-was-a-lie-a-big-lie-to-sell-more-plastic-industry-experts-say-1.5735618

[fareastwarriors]

Somewhat related industry information:

 

https://www.cbc.ca/documentaries/the-passionate-eye/recycling-was-a-lie-a-big-lie-to-sell-more-plastic-industry-experts-say-1.5735618

 

similar line of story

 

 

THE PLASTIC PANDEMIC

COVID-19 trashed the recycling dream

 

https://www.reuters.com/investigates/special-report/health-coronavirus-plastic-recycling/

[Spekulatius]

Somewhat related industry information:

 

https://www.cbc.ca/documentaries/the-passionate-eye/recycling-was-a-lie-a-big-lie-to-sell-more-plastic-industry-experts-say-1.5735618

 

similar line of story

 

 

THE PLASTIC PANDEMIC

COVID-19 trashed the recycling dream

 

https://www.reuters.com/investigates/special-report/health-coronavirus-plastic-recycling/

 

Yeah, plastic bags were supposedly dead, but did they stage a comeback!

[kab60]

Fine set of results out. Beat expectations and grew volumes. Guiding for 2 pct. volume growth next year as well. Spits off a huge amount of cash and will be below 4xnet debt/ebitda next year which should set them up for acquisitions and/or share buybacks. They're basically doing what they said they would.

[valueinvestor]

SEA down 12% and Berry up 6% - value for the win. Although losing money burns, at least we have some rationality in the markets.

 

EDIT: Value for the win!

[thepupil]

have done nothing but make money on this one...but still feel like i'm missing something...stock should be $90, don't have the conviction to aggressively average up. defer to other more knowledgeable for hot takes on earnings.

[longlake95]

I'm in the same boat. I think we just have to wait as value moves from debt to equity as they pay down debt. Salmon seems to just grind it out. |I'm happy to just sit. It's an 8% position.

 

LL

[dwy000]

Once again, great execution by the team.  I'm more than happy with them just continuing to grind it out.  $1bn of FCF on $7.3bn of market cap (even after today's increase) is a nice place to be.

 

The one thing that struck me in the presentation/forecast is the jump in capex.  $650M is pretty substantial increase relative to revenue and EBITDA growth projections.  It means FCF is going to be flat even though volumes are supposed to be up and interest costs should continue to come down with lower debt levels.

[manuelbean]

Regarding the increase in Capex, does anyone know what "growing pipeline of customer-linked growth projects" means?

[longlake95]

What are you guys using for maintenance (excluding capex for growth) Capex?

[kab60]

I think they usually estimate around 350m is maintenance capex.

 

Anyway, anyone else get the sense they've taken the criticism to heart? Their presentations are full of sustainability stuff, and they dodged three questions on making acquisitions. I get public markers want low debt and organic growth, but it seems they could create more value by keeping leverage high and only target high return investments. Not sure what their organic hurdles are, and they always lowball FCF (they love to talk about how the always beat it...), but just looking at capex and expected volume growth and I'm not sure they wouldn't be better off buying back shares... Anyway, won't happen, probably shouldn't in public markets, but I hope they don't sissy out due to pressure and take advantage of their size

 

[valueinvestor]

have done nothing but make money on this one...but still feel like i'm missing something...stock should be $90, don't have the conviction to aggressively average up. defer to other more knowledgeable for hot takes on earnings.

 

Funny that you say that - I haven't been able to transfer my gains from SEA because it's at more than 75% of my portfolio. BERY was on my watchlist but I thought ESG wise - it would perpetually trade at a discount. However, I guess that's blasphemous to say haha - value is value.

[dwy000]

I think they usually estimate around 350m is maintenance capex.

 

Anyway, anyone else get the sense they've taken the criticism to heart? Their presentations are full of sustainability stuff, and they dodged three questions on making acquisitions. I get public markers want low debt and organic growth, but it seems they could create more value by keeping leverage high and only target high return investments. Not sure what their organic hurdles are, and they always lowball FCF (they love to talk about how the always beat it...), but just looking at capex and expected volume growth and I'm not sure they wouldn't be better off buying back shares... Anyway, won't happen, probably shouldn't in public markets, but I hope they don't sissy out due to pressure and take advantage of their size

 

Can I ask where you got the $350mn maintenance number?  Was thst a conference call at some point?

 

In my view, if you have 1-2% organic growth, all capex is maintenance.  Its hard to say any of it is growth since the top line is growing at a sub GDP growth rate excluding acquisitions.  It may be for new product lines or the like but those are only replacing existing products.  This is not an organic growth story, it is a cash flow and acquisition story.

[kab60]

I believe I remember them splitting up capex in a presentation but not sure. I think growth is somewhat important, however low it may be, to get a fair terminal multiple. If people consider this a melting icecube with too much leverage I'm not sure a low DD FCF yield is wrong. I too, however, am here for the cashflow and acquisitions. And as I stated earlier, wouldn't mind them doing a leveraged tender offer opportunistically and getting leverage to 5-6 times ebitda, but not sure public markets would appreciate  that.

[manuelbean]

Did the company release the volume growth for each of the segments for the full year?

[manuelbean]

Forget about it. I've found it already on the 8K

[thepupil]

so i was getting ready write a long ranty e-mail about things i/we're potentially missing and about this narrative of a re-rating once leverage goes down below 4x and wondering out loud if there were really prospective shareholders out there who are like "can't own it at 4.1x but love it at 3.9x" and as if on cue there's a VIC writeup today on BERY which features the below gem:

 

Of note, a conversation with a sell-side analyst indicated that when his firm hosted an NDR for BERY in August 2020, not a single long-only fund met with the Company, despite a full effort on the broker’s part.  Universally, the response the broker received from the long-only community was, “Reach out to me when BERY’s leverage is below 4.0x.

 

I continue to wonder if there are really that many funds that are so arbitrary and idiotic, or if that's just an excuse for people who don't want to say "I have no interest in a plastics company at any price"

[Jurgis]

or if that's just an excuse for people who don't want to say "I have no interest in a plastics company at any price"

 

One word: plastics.

 

 

 

(I've probably done this before on this thread  ::)  8) ).

[longlake95]

ya, might be another case of the investment community/public, talking lean but eating fat. Everybody "hates" plastic, except it touches there life multiple times a day everyday - and they love the convenience. If we can get the recycling of plastics to where it should be (not floating around the oceans in huge blobs), it's not such a bad thing is it? Let's pick on plastic, but it's ok to burn down thousand of acres a day of jungle to grow palm oil for our junk food... Berry needs to continue to play the healthcare angle...