Oaktree helps provide SunOpta $30m in preferred equity financing

The Series B shares will pay an 8 percent annual dividend and were offered as part of deal that gives SunOpta the option to call on a second tranche of $30m from Oaktree and Engaged Capital before mid-July.

Oaktree Capital Management has helped provide $30 million in preferred equity financing to SunOpta, a NASDAQ-listed plant and fruit-based food and ingredient provider in which it already owns a 20 percent stake.

Oaktree and activist fund Engaged Capital purchased $30 million in Series B preferred shares, with proceeds designed to finance projects related to SunOpta’s plant-based food and beverages business, and to support liquidity amid the “general economic uncertainty” caused by covid-19.

The deal also provides SunOpta with the option to require Oaktree and Engaged to purchase an additional $30 million in preferred shares before July 15. Both share classes will return a cumulative annual dividend of 8 percent.

Chief executive Joe Ennen said on SunOpta’s first quarter earnings call: “This is a reflection of their confidence in the business outlook and provides us with the capital to support continued investment in our plant-based business unit.”

Oaktree, which declined to comment, made an initial investment of $85 million in SunOpta in late 2016, after a recall of sunflower kernels it produced led to pressure for a sale of the company by its largest shareholder, Tourbillon Capital.

Categorized as part of its special situations strategy, Oaktree’s subsequent investment of $27.8 million in late 2017 brought its stake in SunOpta to around 20 percent. SunOpta sold its specialty and organic corn and soy business to AMERRA-backed Pipeline Foods for $66.5 million early last year, as part of broader reorganization plan.

Headquartered in Brampton, Canada, SunOpta has distinct business units focused on plant-based food and beverages, fruit-based food and beverages and organic ingredient sourcing and production.

The plant-based food and beverages unit provides soy, almond and oat milk to foodservice and retail customers and constitutes the “crown jewel” of SunOpta, said Ennen on the earnings call.

Its $106.2 million in revenues during the first quarter represented 30 percent growth on the same period in 2019 and accounted for $10.6 million of the $15.5 million increase in gross profit SunOpta experienced during the quarter ending March 28.

SunOpta’s plant and fruit-based businesses both cater to customer bases largely concentrated in grocery sales rather than foodservice businesses, he said.

“Foodservice declines are being offset by retail gains, which have moderated after the pantry-loading we saw at the end of Q1,” Ennen said. “The impact of the foodservice slowdown has been more pronounced on our plant-based BU [business unit], and we are encouraged by the announcement of our largest foodservice customer that they will be re-opening thousands of outlets in the coming weeks.”

Starbucks is among SunOpta’s foodservice customers.

Chief financial officer Scott Huckins said that while reduction of Q1 foodservice orders did not have a material impact, such reduction in Q2 would likely result in the SunOpta plant-based unit’s growth moderating from the 20 percent range down to the mid-single digits this quarter.