Photo of Eleanor Hill, Treasury Today, Klaas Springer and Sander van Tol, Zanders.

With the help of Zanders Consultancy, Royal FrieslandCampina’s treasury developed an innovative solution that it refers to as the ‘Wallet Sizing’ Model. The wallet includes all the company’s worldwide banking partners and paved the way for renegotiation of an ‘amend and extend’ of the company’s €1 billion general purpose syndicated credit facility in the difficult market conditions that prevailed in the last quarter of 2011. “The market for bank financing had worsened substantially since early August, and banks generally were finding it difficult to point out where the market stands,” explains Klaas Springer, Director Corporate Treasury at Royal FrieslandCampina.

“In August, we decided to sound our banking group out regarding a potential extension of our existing €1 billion revolving credit facility in combination with potential amendments to pricing,” continues Springer. “This action was largely driven by recent developments raising general concerns on bank creditworthiness and willingness to provide credit. We focused on key relationship banks. Our aim in reviewing our bank relationships on a recurring yearly basis is to achieve a balanced partnership with our banks. We used Zanders’ Wallet Distribution Tool to do this.”

This led to the development of the Wallet Sizing Model, which is tailor made for and maintainable by Royal FrieslandCampina. The findings derived from this Model allowed the company to prepare itself for one-on-one negotiations with its syndicated banking partners when it came time to renegotiate the terms of its revolving credit facility. The company also negotiated and completed, in difficult market circumstances, an ‘amend and extend’ agreement. This resulted in its €1 billion facility being extended out to August 2015. This also substantially lowered margins – especially at higher leverage ratios.

“In spite of the current tough situation in the financial world, we have once again succeeded in improving our loan conditions. We were able to do this because of our healthy financial position and good performance. Amending the conditions of the revolving credit facility will generate an annual saving of several million euros,” says Kees Gielen, Chief Financial Officer of Royal FrieslandCampina.

The new facility is designed to make Royal FrieslandCampina ‘crisis proof’ in the years to come, which is also strategically crucial since the company is in an acquisitive mode. The next phase in bank relationship management will be finding the right balance in credit commitment and banks’ earnings. This will afford the company certainty of funds in the Eurozone, where banks are inclined to reduce commitments.

“Clearly, a five-year refinancing in a new deal was preferable from the perspective of security of funds. However, the payback period for earning back the new upfront fees is between one and three years, depending on how often we use the facility and most importantly our leverage. A five-year refinancing would also probably have implied a reduction of the facility amount with €100m and writing off around €5m of old fees that were still to be amortised under the existing facility. Therefore the amend and extend to 2015 of the existing facility was our best go”. The use of the Wallet Sizing Model in the context of the refinancing exercise shows great innovation. Says Springer: “Our bankers have confirmed that this was a really unique exercise. It was successful in times that almost nobody was able to mirror because FrieslandCampina – with an annual turnover of €9.6 billion – only has a small dedicated team of four people in its front office.”