In 2014, Lamb Weston/Meijer, a major manufacturer of potatoes with roots in both the US and the Netherlands, decided to expand its capacity with a new production line for its specialty products. Arranging the necessary financing provided a good opportunity for evaluating its cooperation with existing finance providers.

With customers in the proprietary fast-food chains in the quick service segment and many ‘casual dining’ restaurants, Lamb Weston is a major player in the international food market for frozen potato products. The brand is also expanding in the retail sector, particularly in the Middle East and the UK. Lamb Weston invented the Twister®, the now famous curly fries. Moreover, the company also makes Ziggy Fries, which have a flaky structure, to keep them crispy for longer, and recently also introduced Connoisseur fries, which look as if they’ve been cut by hand.

Global ambition

Lamb Weston/Meijer (LW/M) is a joint venture owned by two companies, Lamb Weston and Meijer Frozen Foods. An American company, Lamb Weston was founded in 1950 by F. Gilbert Lamb, a grower from Weston, in the state of Oregon. Lamb developed the water gun knife, a device with which potatoes can be cut into fries by water under high pressure. After later developing Curly Fries and CrissCut Fries, the company grew rapidly. The stock-exchange-listed ConAgra then took over Lamb Weston Foods* with the aim of making it the world’s biggest producer of frozen potato products. In support of that ambition, the company decided to also establish itself in Europe, leading to the existing joint venture with Meijer Frozen Foods. This Dutch potato producer started up in 1920, when Cees Meijer Senior bought a potato plant in Kruiningen and decided to sell potatoes grown in the clay-base soil of Zeeland, as of the fifties in frozen form. The family-owned Meijer company and the listed ConAgra now each hold 50 percent stakes in LW/M. The company’s turnover is about EUR 600 million per year – and they process more than 1.3 billion kilos of potatoes into high-value products.

New production line

Significantly, LW/M’s turnover continues to grow and the company has succeeded in increasing its market share in several European countries. “That’s why we want to expand our capacity,” says Peter van Wouwe, CFO of LW/M. “We’d been toying with this intention for a while and last year we decided to act on it by installing a new production line in our Bergen op Zoom factory. We already have a production line there, but we’re now installing another alongside it for our specialty products like Twister® Fries and CrissCuts®. This was a key reason for us to start looking for fresh financing.”
The expansion called for an investment of about EUR 120 million. And even though the company generates substantial cash flow, it still needed to raise the new financing. “First we wanted to explore the best way of structuring it. We’d enjoyed several years of excellent collaboration with ABN Amro and Deutsche Bank, but it’s always a good idea to revisit existing agreements to ensure you have the best possible starting position.”

Financing form

LW/M had used Zanders for the financing of an acquisition before Van Wouwe joined the company. “That collaboration went very well so we decided to get in touch again for this financing requirement,” says Van Wouwe. “We’d already discussed it with Zanders in the preliminary stages and in December 2014, when we decided to make the investment, we immediately started checking out the best way to structure it all. We set up a good roadmap and the first question we encountered was which form of financing should we opt for.”
The choice was whether or not to arrange the funding through its regular banks. “In addition to the existing credit lines extended by our banks, we decided to also examine other potential financing opportunities,” says Van Wouwe. In exploring its options LW/M decided it was wise to include both a best-case and a worst-case scenario. “A specific aspect of our financing requirements is that there can be substantial fluctuations in our results. This has everything to do with our raw material. The potato is a natural product and one year the price can be very low and the next year prohibitively expensive - sometimes varying by a factor of 20. And, of course, this significantly impacts our results and working capital. This is why we had to include a worst-case scenario; what would it mean for our results and cash flow if we had a very bad year? Any new financing would have to make allowance for such a situation, so that we wouldn’t immediately have to go back, cap-in-hand, to the bank.” That said, new financing based solely on a best-case scenario would also raise questions, thinks Sander van Tol, managing partner of Zanders: “In recent years, the company has been profitable and has earned a lot of money. So it begs the question of whether you’re not allowing yourself too much room so you can make other investments too. It’s a trade-off between how much financing you are looking for and for how long? Based on all this, we checked the flexibility of possible financing instruments and soon came to the conclusion that bank financing was the best option.”

Term sheet

Afterwards, an inventory of the banks was started up. “First, we put together a long-list of banks that might be suitable,” says Van Wouwe. “Together with our partners in the US, we looked at what would suit us the best and with which banks we could maintain a good relationship in the longer term. In this respect we are pretty traditional because we have excellent relationships with our banks. At the end of the day, particularly when the going gets tough, it’s very important that you can always get on with one another.”
After whittling down the long-list to a shortlist, LW/M invited four banks so that it could present the company’s plans and expectations, together with a forecast of cash-flow development during the coming years. “We saw that the banks were interested and, by means of a detailed term sheet, we gave them a proposal in which the terms of the financing were summarized,” explains Van Wouwe. The ensuing discussions were mainly about what LW/M was looking for in the financing and the best way to structure it. Among other aspects, the impact of regulation (Basel III) on the pricing of the financing was also discussed. In the interests of cost optimization, it was decided that the loan should be ‘labeled’ as two separate parts. One part would be for the expansion of the plant (a so-called term loan) and the other would be for the company’s working capital (a form of current account financing that could be used when the company needs it – a flexible variant). “In this way we achieved the best composition for our size and organization,” assures Van Wouwe. “Working with just one bank is hardly ideal, yet every bank that’s added to the equation makes it more complex. At the end of the day this approach, in which banks were invited to participate on the basis of the detailed term sheet, worked out well.”

The devil is in the details

Documenting the agreements in the term sheet is a detailed (legal) process and to accelerate the documentation phase it’s common practice to set up the term sheet in a very painstaking manner. “Banks want to know now what you’ll be doing in three years’ time and lay down agreements on this in the term sheet. During the next few years, for example, we want to be able to establish new entities in different countries, without constantly having to consult the bank – which could suddenly refuse us. That’s the kind of thing you want to avoid.” This is also why Zanders collaborated closely with LW/M’s external legal advisor. “That accelerated the process considerably,” says Van Tol. “What was unique about this process was the time invested in preparing the term sheet that listed all the agreements with the bank. One page can sometimes be sufficient for a term sheet, but in this case it was eight pages. And its importance shouldn’t be underestimated either, because signing the term sheet is like signing a wedding certificate – and it’s always advisable to know exactly whom you are marrying. During the documentation phase, to avoid working with irregular templates that could make the agreements less clear, we used the term sheets of the LMA, or Loan Markets Association. And in this project too it proved successful, because the devil is in the details.” Nodding in agreement, Van Wouwe remarks that it does indeed pay to negotiate the contents of the term sheets in great detail. “The LMA principles adopt a different approach – more at an international than national level. And that’s a much better fit with what we want to achieve.”

New fries

April 2015 saw the groundbreaking ceremony for the new production facility and six months later they started installing the machines. “It’s a very complex project, comprising three separate projects rolled into one,” explains Van Wouwe. “Firstly there’s the technical realization of the new production line. Then, once the line is established, we must be able to start production immediately, the employees must be properly trained and the right sales contracts must be in place to ensure that suitable sales markets have been found for the production. The third and final of these projects is underscoring the continuity of the factory. The new production line, together with the existing one, will use the same receiving area for the potatoes, despite their packaging being very different. It’s a logistical challenge, but fortunately it’s all going according to plan.”
LW/M expects the new line to start being productive in July 2016. “We’ve never carried out a project of this scale before and we’re extremely pleased that we’ve been able to secure such a good banking solution for it,” concludes Van Wouwe.

On the 18th of November Conagra announced a renewed strategic focus: “ConAgra Foods Announces Plans to Separate Into Two Independent Public Companies”.

The Netherlands’ most compact university has a prime location: adjoining the capital’s Zuidas business district and the VU medical center. The VU’s situation is unique in that the city has grown towards it. Both its collaboration with the business sector and with the medical world takes place just a stone’s throw away.

In 1992, the university had approximately 8,000 students; that number is now around 24,000. In terms of the university’s physical real estate, however, not much has been added since the early 1990s. And yet, without any appreciable increase in its accommodation, the number of students studying at the VU has tripled. Partly because of the major growth that the university has experienced, the VU adjusted its substantive vision to the future, under the motto ‘VU Amsterdam: looking further,’ and plans were drafted for expanding or modifying the campus. Since 2003 the university has been considering a vision for the campus; it was only a few years later that it made that vision concrete and the plans for the current renovations on the VU site were established. This gave rise to funding requirements as well.

The early crowd-funders

The VU was founded in 1880 by a group of reformed Protestants, led by Abraham Kuyper. They felt that the education offered at other universities was too liberal. The ties with the reformed Protestant church were strong up until the 1970s. The VU was in fact founded using an early form of crowdfunding: donations from reformed Protestants throughout the Netherlands financed the education at the VU. Fundraisers went door to door asking for donations, carrying green collection boxes bearing a picture of Abraham Kuyper—not only a minister and politician but also known as the founder of the Anti-Revolutionary Party. Radboud University was financed in a similar manner, but by the Catholic community in the Netherlands.

Its original source of funding means the VU has a special structure. While other universities have their roots in the Education Act, the VU is a Dutch stichting (foundation), called the Stichting VU-VUmc, with the university (VU) and medical center (VUmc) as divisions. Other universities such as Leiden University and Utrecht University also work with medical centers, but as separate legal entities and not within a single foundation. “This structure makes it more difficult to arrange funding in the way that other universities do,” says Hanco Gerritse, financial director at the VU. “The VU and VUmc operate as separate entities but must always take each other into account in their financing. In the Netherlands, universities have the possibility of getting funding from the Dutch Ministry of Finance. However, this method of funding, called ‘schatkistbankieren,’ was less attractive in this instance. We therefore chose to work with Zanders, so that the consultants could support us in finding the best financing solution.”

As first university

Zanders first had to investigate how the VU could finance its accommodation plans. Alongside possibilities of bank financing, the VU was also advised to look into a loan via the European Investment Bank (EIB). Gerritse says: “The VU did not have any long-term capital. It was not something we were set up for. Most of the knowledge required we gained from Zanders. And they played an important role in the contact with the EIB. The cooperation fits us like a glove; it is a real partnership.” And the fact that the EIB emerged as a financier is special, says Gerritse. “What makes it so special is that we are the first university in the Netherlands to receive financing from the EIB. Due to both the creditworthiness and nature of the EIB, the pricing is far below those of commercial banks. And they still have more funds available, for the Netherlands and for education in particular.” The construction project involves a total investment of some €460 million. The maximum amount of funding the EIB will provide is half of the investment by way of combined project financing.

Most of the knowledge required we gained from Zanders. And they played an important role in the contact with the EIB. The cooperation fits us like a glove; it is a real partnership.

Hanco Gerritse, financial director at the VU

At other universities, schatkistbankieren and/or loans from commercial banks play a large role in the financing; the VU itself contributes the rest of the investment sum for this project, generated from cash flows and its own resources. These cash flows come from the government, based on the number of students and graduates (the first flow of funds), in the form of research financing (second flow of funds), or originate from the European Union and businesses (third flow of funds). “The buildings used to be owned by the Ministry of Education, but since 1995 the universities own their buildings and sites and are therefore responsible for their accommodation, maintenance, and investments as well,” says Peter Wemmenhove, head of planning & control. “The VU’s main building was built at the beginning of the 1970s and is now in need of renovation. This modernization also falls within the scope of the financing.”

Seven Projects

The projects that fall within the project financing are:

• The O|2 building (due for completion in 2015)
• The Campus square (University building NU.VU)
• New power turbines in the VU’s own power plant: Energy center
• Renovation/upgrade of Main building
• Car park under the O|2 building
• Upgrade of the Medical Faculty building
• Changes to the Mathematics and Physics building

Long-term partnership

Wemmenhove started at the VU in May 2012. The project had already been under way for six months at that point; the information memorandum was being prepared and sent out. Gerritse was appointed financial director one year later. Not long before that he had held the same position at healthcare institution Cordaan, where he also worked on a financing project with Zanders. “We see the EIB’s financing as a show of confidence in our plans from a triple-A-rated European institute,” says Gerritse. “After all, it is a public agency and cannot invest indiscriminately. By investing in our plans, the EIB is endeavoring to achieve the objectives agreed on between the European countries.” The VU and EIB did not only discuss the financial angle; the EIB also cooperated closely with VU’s accommodation department, the Campus Facilities Organization (FCO), and of course the VU medical center.

Zanders also played a big role in that, especially because the process was complicated due to the complex legal structure of the foundation.

Hanco Gerritse, financial director at the VU

The most expensive sports fields

Gerritse proudly explains what buildings are being built with the funds raised: “It is a combined project to build a number of new buildings and overhaul existing buildings. The new buildings will be the O|2 building and the new university building NU.VU. We are also improving the sustainability of all our buildings. For instance, in our own power plant we use seasonal thermal energy storage (STES) to cool or heat the buildings. In the main building, the shell will remain intact and we will open up the many small rooms into larger, brighter open-plan offices. All of which meets the needs of our lecturers and students.” This means more flexible workspaces as well as more opportunities for contact between lecturers and students. “The building must be up to date for at least the next 15 years,” adds Wemmenhove.

Connections between the businesses in the Zuidas district and the university are also being stimulated. “The most expensive sports fields in the Netherlands are across the street,” says Gerritse. “They are owned by the municipality but we are going to trade that land to accomplish a more explicit connection with the city. The sports fields will then be moved to behind our site. This puts us closer to the Zuidas district and brings the businesses even closer to our campus.” So there will be even more cooperation between university, business, and the government—something the government is also eager to encourage.

The VU recently started a major research program in cooperation with the University of Amsterdam and ASML. Some of the laser technology used by the semiconductor manufacturer was developed at the VU. Gerritse adds: “That is a really fine example: conducting research together, using the technological expertise from within the universities and then together finding applications for this knowledge. It has yielded a great deal for Amsterdam. Investing in a strategic partnership makes it easier to achieve such results.”

Phased approach

The VU’s real estate investment is a multi-year plan that runs to 2030. Underlying the multi-year plan is the thinking that the university must find more points of connection with the city: the VU, looking further. “The gates must be open,” says Gerritse. “By establishing the connection with the Zuidas district we can give the entire urban district a boost. That is the larger, urban planning vision behind our plan.”

Within the time span that the European Investment Bank provides funding, seven projects have been defined, both new builds and renovations of existing buildings. These projects comprise the combined project financing for the first phase. The total multi-year plan is executed in different phases. The reason for this phased approach is mainly to limit the risks linked to the investments. “We will examine the situation during every phase,” explains Wemmenhove. “How many students we have, whether the government financing is changing, how business is developing in the Zuidas district—these kinds of factors can prompt us to adjust the course of the plans.” The current investments are still in the first phase and are expected to be completed in 2018. Residential facilities, retail units, and movie theaters are also included in the subsequent phases.

What did Zanders and the VU do together as a
project team?

• The contact with financiers (EIB, commercial banks, and the Ministry of Finance), including negotiations
• Cooperation with FCO (campus facilities organization), VUmc, and Van Doorne (lawyer)
• Drafting of information memorandum, including model and multi-year projections and RfPs
• Selection of financiers
• Structuring of the financing, tailored to the organization and its current financial statements

Better positioned

The funding from the EIB also reflects another trend in the academic world, specifically that universities are becoming increasingly international. The competition between universities is no longer confined by national borders or even by European borders. In the international realm, the city of Amsterdam will also profit from the developments at the VU. “More than half of the master's curricula are in English,” explains Gerritse. “As a university and as a city, you are competing on the international market for higher education. The fact that we have good facilities puts us in a better position in that market as well.” In that sense, too, the financing from the EIB is an affirmation of its confidence. “Compared to a commercial bank, the EIB looks at a financing plan very differently, looking far beyond cash flows and revenue forecasts,” says Koen Reijnders, consultant at Zanders. “Probable questions include, for instance: how will the envisioned building function and how sustainable is it? The EIB only starts looking at the financing component when it’s satisfied from both the engineering viewpoint and the perspective of education economics.”

“We are investing in the Zuidas district,” says Gerritse. “When the VU moved here it was surrounded by farmland that was being sold and bought. Since then, this land has grown into a unique area. The VU had to investigate the right way to develop the space available and, with this plan, we have succeeded in doing this.”

The Delft University of Technology (TU) aims to be a world-class institution with excellent research in specific disciplines. In order to achieve this, it needs good research facilities. A substantial part of the current facilities is up for renovation. How can this be financed in times of cost cutting?

More than 5,000 people work at TU Delft, and 17,000 students study there, preparing for professional life. “The TU is a city in a city,” Rianne van der Slot explains. She is the controller of the real estate management team at the University of Delft. “We own 36 buildings with a floor space of approximately 550,000 square meters. We manage all real estate ourselves, as well as the land. We even own the sewerage and have to maintain it ourselves.”

In 1999, the government donated all university real estate to the TU. Most buildings date from the 1960s and ’70s and are in need of thorough, large-scale maintenance or replacement. “The TU Delft will have to finance this itself,” says Mariëlle Vogt, director of finance at the TU. “The estimated costs of possible new buildings, renovation, and large-scale maintenance for the next 10 years amount to approximately half a billion euros.”

The Ministry of Education, Culture, and Science gives a Government Contribution to the TU on a yearly basis, as it does to all Dutch universities. This amount varies as a consequence of different government decisions and adjusted ministerial budgets and is more likely to decrease than to increase despite the growing number of students.

Vogt says: “Unfortunately, we receive no extra government contribution for these investments in real estate. All universities struggle with the combination of real estate in need of renovation and little resources of their own, but for a technical university like ours, it is even more essential. Real estate is a core asset in our primary process. You need a specific building in order to build a sophisticated lab. At universities, you won’t attract renowned scientists with a high salary unless you also have top-rate facilities, so infrastructure is essential. Only then will you be able to attract the right people.”

Role-play

At the end of 2009, the university decided to make extra savings in order to be able to put funds aside for renovations in real estate, education, and science. The plan was to borrow a limited amount and, in addition, put some money aside every year. From 2010 onwards, however, considerable cutbacks were made in the contribution of the government. “As far as revenues are concerned, The Hague is now an uncertain factor,” Vogt says. “It is really difficult to make funding prognoses for the next 30 years. We have to engage in scenario planning and perform sensitivity analyses to ensure that we can pay the loans back in time. That was a reason to look for external help, from Zanders.”

TU Delft preferred funding from the government: Treasury Banking (in Dutch: ‘schatkistbankieren’). Apart from the fact that it is cheaper, it makes more sense for us, as a university, to borrow from another public body. In addition, the government has sufficient resources available, says Ronald van den Bosch, senior business controller of the TU. “We did not know, however, if we could meet the conditions of treasury paper.”

Together with Zanders, a role-play was developed. Vogt explains: “We prepared everything as if we were going to a commercial bank and then asked Koen Reijnders and Hendrik Pons to take the critical position that a bank would take. By doing this, we wanted to submit ourselves to the discipline of a commercial bank – then you know that you are acting in a prudent manner.”

Infrastructure is essential. Only then, will you be able to attract the right people.

Mariëlle Vogt, director of finance at the TU.

Scenarios

It became clear that the TU was able to meet the conditions of Treasury Banking. The business case that Zanders developed with the TU departments for Real Estate and Finance led to a model with which one could calculate the outcome of all kinds of scenarios. An extra investment in one of the buildings, an unexpected interest development, or a higher indexation of building costs: the consequences of all these occurrences will become clear from the model.

“Together we built a toolbox with which we can – so it seems – anticipate developments,” Vogt says. “It is a custom-made model that extends to 2030 and contains a number of scenarios – different financial prognoses in which there is a constant connection between the overall financial prognosis of the TU Delft and its real estate plans.”

The interests of the two departments differ. Real estate feels the pressure of users that require certain facilities. Finance supervises the prudent use of limited funds. “Zanders has connected these two interests,” Van den Bosch states. “In the case of real estate, one argues on project level, whereas the finance department thinks on a balance sheet level. With the model, the consequences on an aggregated level became clear for both sides – a good joint effort of the departments. By constantly setting the costs of certain investments against the funding of those investments, one can decide what the possibilities are within a certain period of time.”

Towards the future

It happens all too often that such a model is built to support funding but afterwards disappears in a drawer. The TU chose to use the model as part of the process to make timely adjustments, when necessary. Vogt says: “Twice a year – also to inform our supervisory council – we update the investment and maintenance plan, including all financial prognoses at TU level. We have subjected ourselves to this discipline; normally you would leave that to the bank. The model safeguards that this happens in a well-thought-out manner.”

At an earlier stage, it was not necessary to use a “model with scenario buttons,” as the costs coincided mostly with the revenues. The real estate investments were the direct cause. Now the model will be used in future. “Together with Zanders, they have the up-to-date knowledge of the market,” Vogt says. “Our two focus areas this year are the finance and risk policy. Of the EUR 500 million that we spend each year, approximately EUR 350 million comes from the government. Every time, you have to carefully consider which investments you will make that year. The model indicates per year the effect of such an investment on your liquidity, amortization, and maintenance costs.”

No vibrations

“In the case of investments in large-scale maintenance, we look for opportunities to reduce costs toward the future,” Van der Slot says. “Certain investments will lead to energy savings or lower CO2 emissions. Renovation will also reduce certain maintenance costs. It is very interesting to see that in such a model.”

Growth is not the purpose of renovation. It is more likely to see fewer TU buildings than more in the future. With the renovations, the ‘New Way of Working’ will be introduced. BK City, the housing complex for the TU faculty of Architecture, has many open spaces and flexible workplaces. We will introduce renewed concepts of education, such as offering digital classes.

All sorts of rankings exist that indicate the relative position of universities. These are not just based on the number of students, but decisive factors are primarily the amount of research and the number of publications. These, then, depend again on the infrastructure that one can offer. Vogt notes: “Some buildings have to satisfy very high standards, like the building of Applied Sciences. In the Nano labs, the passing of a truck should not cause any vibration whatsoever. It is an interesting but complicated matter. We are not a cookie factory.”