Bankruptcy sign

John Paulson holds approximately 12% of out standing shares in a UK based public company, Premier Foods Plc (LON:PFD). This holding does not show up on 13-Fs, since the company is based on the London Stock Exchange. Also, Paulson discusses holdings sometimes in his hedge fund letters, but according to what we have seen has not disclosed this stake. However, this holding has been disclosed by the media since early 2010.

The company, according to their website:

Premier Foods is home to some of the nation’s favourite food brands. Every year over 99% of British households buy a Premier Foods’ product, so you’re likely to find us in every British kitchen and on every British table.

Paulson has likely lost money on this trade, continuing his bad luck streak for 2011 and 2012.

Below is a bloomberg grab of the top equity holders of the company:

The stock is up 130% YTD, but the equity might be worthless soon, and bidding is heated for the debt according to our sources.

Already changes are underway, but what they can do to change the tides of the company remain to be seen. The CEO and the CFO have been replaced, and the new management faces daunting challenges. Interest rates will go up in 2014 under a new agreement with bondholders and according to Interactive Investor, total debt including pensions and leases equal 126% of tangible assets. However, there is a war going on for the bank debt.

Apollo Global Management LLC (NYSE:APO) and other big funds are bidding on bank debt (offered by a Spanish bank), hoping to do a debt for equity swap.

John Paulson might be interested in the bank debt to protect his equity position, but we have not confirmed this. We know that he has looked at the debt but have not confirmed any bids by his hedge fund.

The problem in this case seems to be the valuation. Apollo Global Management LLC (NYSE:APO) and others wanted to bid 75 cents on the dollar for the debt, but the banks pulled their offer.

The big players are assuming the equity will be wiped out and are seeking bargains in the debt.

We have no confirmation for why Apollo finds the debt attractive at lower levels, but we will be detailing some interesting facts about Apollo’s attempt to find bargains in the European debt market.

(disclosure: No position)