Apollo portfolio company had almost $600m debt at time of sale

Apollo Global Management portfolio company Pinnacle Agriculture had accumulated at least $573.5 million in rated debt by the time of its sale to JR Simplot Company in November, Moody’s Investor Services data show.

Vice-president and senior analyst Anastasija Johnson told Agri Investor that the estimate, included within a December ratings action necessitated by the announcement of Pinnacle’s sale, includes only credit rated by Moody’s and does not provide an estimate of the company’s overall outstanding debt.

“Our assumption was that as a result of the sale, all of this debt that we currently rate will be repaid and therefore we will withdraw the rating,” Johnson explained. “The purchase price was not publicly disclosed, therefore I cannot estimate ultimate recoveries.”

Pinnacle had revenue of $1.4 billion in the 12-month period to September 2019, according to Moody’s.

Apollo and JR Simplot declined to comment about the sale of the inputs retailer.

JR Simplot, a privately held food and agribusiness company headquartered in Boise, Idaho, announced on January 17 that it had finalized the acquisition of Pinnacle. The combined companies will operate as Simplot Grower Solutions through a network of more than 240 stores located throughout the US and Canada.

Pinnacle was founded by Apollo in 2012 and built a network of more than 145 stores in 27 states through a strategic partnership with established retailer Jimmy Sanders, Inc and has had more than 40 subsequent acquisitions.

“Pinnacle funded its acquisition growth strategy with debt, but projected integration and synergy generation lagged behind while agricultural input demand declined, resulting in weak credit metrics, strained liquidity and debt restructuring in early 2017,” Johnson wrote in a September 2019 downgrade of Moody’s outlook for Pinnacle.

Apollo participated in the $125 million recapitalization for Pinnacle in early 2017, which gave the firm preferred equity and was designed to reduce its overall debt load to $200 million.

In the September report, Johnson highlighted that Moody’s estimate of Pinnacle’s adjusted leverage at 12.3x as of June 30, 2019 (including operating leases and third-party receivables financing) reflected a decline in earnings exacerbated by poor weather that reduced demand for inputs.

She judged then that selling the company or divesting assets would be challenging “in the current market environment” and that Pinnacle’s liquidity would remain weak as it faced debt maturities in November 2020 and November 2021.

Pinnacle announced in July that its board had launched a strategic review that would include a potential sale of the company.

“The decision to launch this process follows multiple unsolicited expressions of interest in Pinnacle from several parties both within and outside of the agriculture industry,” Pinnacle noted in the announcement.