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Orchard Foods · ORCH

DEMO DATAUNDERWRITING ASSUMPTIONHOLD
Five-minute case summary

Orchard Foods

DEMO DATAUNDERWRITING ASSUMPTION
HOLD
1
The opportunity
Demo purchase of $100M face of Subordinated Notes 8.25% at 94.0 (cash investment $94.5M): current yield 8.8%, yield to maturity 9.7%.
2
The question
Does a 9.7% yield on a rank-4 unsecured claim compensate for 15% probability-weighted default risk and 61% severe-case loss?
3
The thesis
Defensive end market but 4.3x net leverage and volume decline. The subordinated notes at 94 yield ~9.5% and are covered in all scenarios on EV, though this is a carry trade rather than a distressed idea.
4
The risk (what causes loss)
  • Refinancing: $800M maturity in FY2030E; only $291M projected liquidity; $509M refinancing requirement.
  • Severe-case valuation recovery of 39% is below the 94.0 purchase price: a 61% loss given default.
  • Severe case produces a payment default in FY2029E.
  • Unsecured, rank 4: $1.7B of debt ranks ahead.
5
The protection
  • Coverage of 3.12x EBITDA / interest; EBITDA can fall 68% before coverage reaches 1.0x.
  • Base-case refinancing tests pass for all 2 maturing tranche(s); 1 are repaid from cash.
  • No covenant breach in the Downside case.
  • Defensive demand
6
The base case
Base case (55%): revenue 1.0% in FY2026E, EBITDA margin 16.0%; no default; IRR 10.5%, MOIC 1.32x vs 12% hurdle.
7
The downside
Downside (30%): EBITDA $371M at the trough, peak net leverage 4.9x, covenants hold; no default; IRR 7.3%. Severe (15%): default in FY2029E, IRR -6.3%.
8
The recovery
If the company defaults, recovery value is $1.7B (going concern) in the severe case → 39% recovery (61% LGD) on the target tranche; downside 100%.
9
The decision
HOLD. HOLD (do not size yet): Base-case IRR clears hurdle (10.5% vs ≥ 12.0%); Expected-cash-flow IRR (probability-weighted) clears hurdle (6.7% vs ≥ 12.0%); Principal protected in severe case (recovery ≥ price) (39 vs 94.0 vs recovery ≥ price).

Generated from the structured model (no free-text generation beyond the analyst’s thesis and risk lists). Hypothetical terms are underwriting assumptions; nothing here is a real transaction.