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The Edrington Group found a spirited response in the US Private Placement market for its subsidiary 1887, with the help of Lloyds Bank Commercial Banking.
Scotch whisky is nothing if not a decades-long investment. Take The Macallan, the famous Speyside single malt, launched in 1824 and now one of Scotland’s top selling brands. It spends anything from 10 to 30 years maturing in oak casks before it gets anywhere near the world’s retail shelves.
So, when Alan Frizzell tells you “our challenge is investing in long-term success,” you recognise a modest understatement when you hear it. As Director of Finance at The Macallan’s distiller, The Edrington Group (Edrington), Alan knows all about the science of matching the huge investments the Group's making in stock today to satisfy the demand Edrington predicts from appreciative buyers in 12, 18 or even 25 years’ time.
Alan feels that there is opportunity for growth in emerging markets. “There’s rising confidence in the potential of countries like Russia, India and China in particular to break through and become large Scotch markets 12 or 30 years down the line,” predicts Alan. “History tells us fast developing economies with a growing middle class can become large markets for Scotch whisky.”
That optimism certainly helped when Edrington sought to refinance its debt to fuel growth through its subsidiary 1887. Controlled by the charitable Robertson Trust, Edrington couldn’t access longer-term capital by issuing shares, and had previously raised funds through the bank market.
“Our strategic aim was to remove the re-financing risk associated with the underlying borrowing requirements of the business,” explains Andrew Clark-Hutchison, Relationship Director for Edrington at Lloyds Bank Commercial Banking. “There’s huge demand for The Macallan as the ‘Rolls Royce of whiskies’, but it’s unquestionably a longer-term investment.”
The Lloyds Bank Commercial Banking, Debt Capital Markets and Sales & Derivatives Structuring teams worked seamlessly together to deliver a $300m US Private Placement.
Although a first for Edrington, there has been an increase in private placements in the wake of the turmoil in the credit and debt markets. “People want to diversify from bank funding as their sole source of debt capital,” says David Cleary, Director, Corporate Debt Capital Markets, Lloyds Bank Commercial Banking. “It’s a very viable, cost effective alternative for clients with a core debt requirement of seven to ten years and I expect the growth in interest to continue.”
For Edrington, the key was finding the right financial partners. “A fundamental feature of this initiative was the support of banks who not only understood the dynamics of our business, but had expertise in the private placement process itself,” recalls Alan Frizzell.
"To go on a roadshow to meet potential investors – one day in London, three in the US, covering eight cities – that’s really a big step. The relationship needs to be close, and the management team did a fantastic job.”
Alan Frizzell recollects the circuit as “daunting initially” but quickly found that “it played to our passion for the business”. And it paid off. Having initially sought $150m split between seven-and ten-year maturities, the Bank fielded orders for over $600m. Edrington settled for $300m.
Alan is sure that the established reputation of the company’s portfolio of brands primarily drove demand. But another key factor was Lloyds Bank’s experience of taking companies to the US market – many with no operations or reputation Stateside. The joined-up approach of the deal team was pivotal.
“Edrington’s requirement to pay a Dollar coupon every half year to the bondholders generated two major hedging objectives,” recalls Ed Massey, Sales and Derivatives Regional Director, Scotland, Lloyds Bank Commercial Banking. “First, how best to carry a large Dollar liability on their Sterling balance sheet. Second, how to service the rolling Dollar coupon on a semi-annual basis over the maturity of the private placement.”
The Bank’s understanding of Edrington’s business helped it create a bespoke solution. “Normally, we’d approach this simply through a cross-currency interest rate swap,” says Ed Massey. “But Edrington wanted to manage their balance sheet without big swings in the Dollar liability and, at the same time, utilise their Dollar cashflows to service that Dollar coupon.”
The collaborative nature of the Bank’s deal teams meant approval was received at an early stage and that the process was transparent to the customer throughout.
“The joined up process worked well,” concludes Alan. “It gave us confidence that nothing was going to fall through the cracks.”
1798 - THE MACALLAN FOUNDED For many years whisky experts have considered The Macallan ‘the single malt by which others must be judged’ – a genuinely luxurious brand of international stature.
1798 - HIGHLAND PARK Highland Park is now one of the top 10 best selling single malts in the world. “If you only drink whisky once in your life make sure it’s this one”, say Tesco Direct.
1888 - BRUGAL FOUNDED Brugal – in which Edrington took a majority stake in February 2008 – is the leading rum brand in the Caribbean. In Spain, its major export market, it is drunk with Coke, on the rocks or in rum cocktails.
1896 - THE FAMOUS GROUSE FOUNDED
The first blended Scotch whisky to introduce a cask-finished range, The Famous Grouse has been at the forefront of innovation within the Scotch whisky industry.
1923 - CUTTY SARK FOUNDED
Cutty Sark has sold over 1 billion bottles worldwide and remains an enduring international brand and a market leader in many Mediterranean countries.
Factual information for this article has been sourced from www.edringtongroup.com
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