Apollo simplifies Tragus’ complex capital structure built up over successive buyouts

A consortium led by Apollo Global Management has completed the complex restructuring of Tragus Group, formerly owned by Blackstone, after taking ownership of the restaurant chain operators through a debt-for-equity swap and reducing its debt by more than £260m.

Tragus logoApollo, alongside co-investors, has issued a fresh £91m loan to Tragus refinancing a series of Barclays Capital senior, mezzanine, capex, working capital and revolving credit facilities built up under the ownership of former Tragus owners, Blackstone and previously, Legal & General Ventures.

York Capital Management, Deutsche Bank and Oak Hill Capital Partners are Apollo’s three co-investment partners in Tragus’ new ownership.

All legacy Barclays debt has been refinanced along with £73m of Cayman Island-listed Eurobonds, which carried a 17% interest rate.

The Apollo-led consortium has now completed three company voluntary arrangements (CVA) since the June’s legacy debt restructuring was announced.

On Tuesday, Tragus sold 43 of the 56 Strada restaurants, previously part of the Tragus Group and put up for sale in June, for £37m to Sun Capital Partners.

Zolfo Cooper Corporate Finance was appointed in June to run the company restructuring process.

Apollo seized control of Tragus, the owner of Bella Italia and Café Rouge, from Blackstone back in March after acquiring around £250m in senior and mezzanine long-term loan tranches in the secondary markets originally extended by Barclays Capital.

Blackstone itself was one of the sellers of Tragus’ debt to Apollo, acquired at a discount, after opting to narrow its losses rather than fight to retain control of the company’s equity.  Tragus’s annual losses rose from £19.3m to £33.7m in the 12 months to June 2013.

Tragus’ outstanding debt peaked at £357.8m, according to the company’s 2 June 2013 annual results, with the complexity of the company’s legacy debt stack a function of its antecedent private equity ownership history.

Legal & General Ventures acquired Tragus in January 2005 for around £90m from ECI Partners, financed with £107m in senior and mezzanine debt from Barclays Capital subsidiary, Barclays Leveraged Finance, which included working capital to finance the running of Tragus and its planned expansion.  The blended margin was 412.5 bps over LIBOR.

Less than two years later, in December 2006, Blackstone paid £267m for Tragus, financing the purchase with £167m of debt, provided by Barclays Capital, including inheriting Legal & General Ventures’ debt and £40m of capex and working capital.

In addition, between April 2007 and October 2008, Blackstone issued nine and 10-term Eurobonds, at eye-watering interest rates of 17.35% and 17.475%, respectively.

Eurobonds allow UK companies to pay interest to an overseas-domiciled lender without paying 20% tax to HMRC, capitalising on a regulatory loophole which dates back to a 30-year old UK government exemption allowance.

Blackstone was the owner of the listed Eurobonds and so was entitled to the interest rates stated.

After successive tap issues for the two Eurobonds, listed in the Cayman Islands under the issuer name of Tragus Bondco Ltd, the unpaid balance reached £51.87m and £21.25m for the nine and 10-year bonds, respectively.  

One week after Tragus announced the planned restructuring, both Eurobonds were delisted and the debt retired under the new Apollo-led ownership structure.

In a statement, Steve Richards, CEO at Tragus Group, said: “The restructuring and refinancing phase has been successfully completed and we have transformed Tragus into a focused and financially sound group with a compelling buy and build strategy.

“Bella Italia and Café Rouge will now benefit from substantial investment and innovation as we develop and scale these two well-loved brands.”

Today, Tragus, which owns 200 Café Rouge and Bella Italia restaurants throughout the UK, has reconfirmed a £110m investment programme for capex into existing restaurants as well as to finance the acquisition of new sites.

Tragus will open 12 additional sites this year and has reached an agreement on 18 further sites.

In a further announcement, Martin Robinson, currently chairman of the Blackstone-owned Center Parcs and non-executive director of Disneyland Resort Paris, was confirmed as non-executive chairman of Tragus.

New chairman Martin Robinson said in a statement: “Tragus is now in great shape and it has ambitious growth plans. I am looking forward to working with the team as the business begins its next stage of development.”


About CoStar News

Finance Editor, CoStar News
Gallery | This entry was posted in Banks, Lenders, Merger & Acquisition, Mezzanine, Private equity real estate, Real estate advisors, Refinancings and tagged , , , , , , , . Bookmark the permalink.

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