Fri 10/02/2020 12:29 PM
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Cote incumbent and sole lender Partners Group provided about £15 million in new money as it bought the restaurant chain in a pre-packaged sale out of administration, sources told Reorg. The new money could form part of a new revolving credit facility, sources added. Continue reading for the EMEA Middle Market team's update on Cote restaurants, and request a trial to access our coverage of thousands of other distressed and performing credits.

Based on the level of secured debt owed to Partners, plus accrued interest and the funding requirement, the company needed to be purchased for a price in excess of about £165 million, according to a letter dated Oct. 1 seen by Reorg. This equated to more than 9x the group’s pre-Covid 2019 full-year EBITDA of about £18 million, and about 13x the group’s last-12-months’ EBITDA of about £13 million.

On Sept. 17, Partners issued a Reservation of Rights Letter confirming that the group was in breach of its facilities and the debt could be accelerated at any time and, absent lender support, any runway for an M&A process was eliminated.

The company required at least £700,000 in funding by the end of November for rental arrears, which would peak to £10.6 million in June 2021, according to the October letter. Talks to secure new money, from its shareholders, which would have been subordinated to existing debt, was unsuccessful and lenders were unable to provide additional liquidity on the basis of the capital structure at that time, sources added.

The group drew its £10 million revolving credit facility in full in March due to the Covid-19 crisis and the impact of the U.K. nationwide lockdown. At the beginning of July, the group was in breach of certain financial covenants under the terms of its senior facilities with the lenders. The group had also built material arrears with its creditors, notably landlords.

On Sept. 28, FTI was appointed as administrator and immediately sold, under a pre-packaged sale, all of the group’s business and assets to Cote Restaurant Group Ltd., Cote Deliveries Ltd. and Greenfield Food Supply Ltd. All previous debt was written off in the holdco.

Under the deal, Partners settled £3 million of unsecured creditor claims left in Cote Restaurants Ltd., which reduced total unsecured creditors in the administration and increased the share of the prescribed part for the remaining unsecured creditors.

In the event Partners disposed of any of the purchasers in the 12 months after completion for an amount greater than £150 million, less professional costs and expenses, (which was equivalent to Partners’ total secured debt at the date of the transaction), Partners is required to settle the lower of the aggregate amount of any and all outstanding unsecured and preferential creditor claims or the value of any surplus sale proceeds in excess of £150 million.

The U.K. restaurant chain’s previous owner, BC Partners, has exited the deal. The group was acquired by private equity firm CBPE Capital in 2013 with BC Partners taking a majority stake in July 2015. Debt funding was provided to the group under a £150 million unitranche facility provided by HSBC and various Partners Group funds. Partners Group subsequently purchased HSBC’s £10 million super senior RCF, leaving Partners as sole lenders to the group.

The group had bank debt of £135.6 million as of July 2019, including a £127.7 million term loan B due May 2024 with a margin of LIBOR+6.5%.

BC Partners provided Cote with £6 million equity in October, to help the restaurant group with a leverage test that was tested on April 26. The U.K.-based chain’s leverage needed to remain below the unitranche level remit of 7x to comply with covenants.

The group operated 98 restaurants under the Cote Brasseries brand and a further three under the Jackson & Rye and Limeyard brands, employing more than 3,000 employees in the U.K.

Burges Salmon advised the company on its pre-packed sale and FTI Consulting was the administrator.

Other companies to undergo administrations or CVAs during the pandemic include Pizza Hut, Carluccio’s, The Restaurant Group, Casual Dining Group, Azzurri Group, Yo! Sushi and Byron.

The benefits and drawbacks of a pre-pack process are highlighted below:
Partners Group pre-pack from EMEA Middle Market by Reorg

--Jaishree Kalia
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