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Tue 13th Oct 2020 - Update: Côte, M&B, sector leaders pause legal lock-down challenge
Côte acquired out of administration for £55m, new report reveals: Côte, the French brasserie chain, was acquired by global private markets investment manager Partners Group in a pre-pack administration for £55m, a new report has revealed. A statement of administrators’ proposal by joint administrators Matthew Callaghan, Andrew Johnson and Lisa Rickelton, of FTI Consulting, said: “The group operated 98 restaurants under the Côte Brasseries brand and a further three under the Jackson & Rye and Limeyard brands. It employed 3,204 people across the UK. The group was originally founded in August 2007 with the first restaurant opening in Wimbledon. The group grew steadily through site expansion and was acquired by private equity firm CBPE Capital in 2013. BC Partners took a majority stake in July 2015. Debt funding was provided to the group under a £150m unitranche facility provided Partners Group funds. Partners Group acquired the £10m revolving credit facility debt from a third party lender in the week prior to the transaction. Recent trading has seen the group demonstrate positive revenue growth (5.9% compound annual growth rate between FY16 and FY19) and although operating margins have been falling, the group continued to post an operating profit in FY19. Like many other UK casual diners, the group was heavily impacted by covid-19. The nationwide lock-down resulted in a circa 30% decline in year-on-year revenue and earnings before interest, taxes, depreciation, amortisation and pension income for the period ending July 2020. As part of the lock-down all of the group’s restaurants were closed and all restaurant staff were placed on furlough. In total, the covid-19 restrictions led to a cash outflow before loan funding of £17.6m in the 12 months to July 2020 and resulted in the group drawing down fully on their £10m revolving credit facility. While the group commenced a phased reopening of its restaurants from 6 July 2020, performance was significantly impacted following the lock-down, such that the group was in breach of the unitranche facility provided by Partners. In addition, the group had built material arrears with its creditors, notably landlords, in spite of continued negotiations to reach agreement on payment plans for rental arrears. The group also benefited from ‘time to pay’ initiatives with HMRC. Despite providing some cash benefit in the second quarter of 2020, this left a significant liability requiring future repayment, which would significantly impact the group’s cash position as it continued to face industry headwinds caused by covid-19. In August, FTI Consulting was instructed by the group to consider its options in relation to the ongoing viability of the companies. In considering these options it became immediately apparent that the value of the business broke well within the secured debt, and that a solvent solution would not be achievable. Partners Group expressed an interest in purchasing the companies business and assets and, in addition, made clear that any third party offer would need to exceed the total level of the Partners Group secured debt, accrued interest and funding requirement of £165m. On the basis of current industry multiples and the limited time available to complete a transaction, it was concluded that the Partners Group offer would result in a better return to creditors than any alternative.” Following the sale, 94 of Côte’s 98 restaurants remained open with 3,148 staff transferring to the new owner. The three Jackson & Rye and Limeyard sites were shut, resulting in 53 redundancies. Last week Alex Scrimgeour stepped down as chief executive of Côte, with Jane Holbrook, who recently joined the business as chairman, becoming its executive chairman.

Mitchells & Butlers begins consultation on redundancies: Mitchells & Butlers (M&B) has begun redundancy consultations with a number of its circa 44,000 staff as it struggles with the impact of the coronavirus pandemic. The Harvester and All Bar One operator has not yet disclosed how many jobs are at risk, but said it would “seek to redeploy affected staff wherever possible”. A M&B spokesman told Propel: “Our industry is operating in exceptionally challenging and uncertain circumstances. While we have worked incredibly hard to make sites covid-19 secure and keep staff and customers safe, we are facing significant difficulties from the recently introduced 10pm curfew for pubs, bars and restaurants, new enforced closures and tapering government support that doesn’t go far enough. M&B, like many others in the sector, has taken the very difficult and regrettable decision to open redundancy consultations with a number of our front-line team and will seek to redeploy affected staff wherever possible. With trading restrictions and uncertainty likely to continue for the foreseeable future, we strongly urge the government to step up the level of support it is offering to an industry that has been repeatedly singled out and taken the full brunt of restrictions.”

Sector leaders pause legal challenge against lock-down: A group of sector leaders has paused plans for a legal challenge against new covid-19 shut-downs after the government limited closures to the Merseyside region. Prime minister Boris Johnson set out new measures on Monday (12 October), but so far Liverpool and the surrounding area is the only one that will have to close pubs, bars, gyms, leisure centres, betting shops, adult gaming centres and casinos. Sacha Lord, night-time adviser for Greater Manchester and co-founder of Parklife and The Warehouse Project, had said the group would meet lawyers on Monday but only act if restrictions are placed on the city where he works. “The plan is on hold,” Lord told Reuters. “We are still going to get the troops ready because obviously things are changing on a daily basis ... we are not out of the zone yet.” Lord said before Johnson announced the new measures that he had the support of trade bodies and pub companies in the region including The Night Time Industries Association (NTIA), the British Beer and Pub Association, JW Lees, Joseph Holt and Hawthorn Leisure.

Safestay to temporarily close eight hostels, staff to take pay cut: London-headquartered hostel operator Safestay is to temporarily close eight hostels reducing the available bed stock of the group to 45%, trading from eight sites. Simultaneously, all directors, head office employees and senior management will either take a 25% pay reduction or choose to reduce salaries by 40% and receive share options in lieu. The company stated: “Localised lock-downs due to covid-19 combined with entering the low season for the hostel market has led to the decision to temporarily close eight hostels. With the Holland Park and Barcelona Gothic hostels closed since April due to having other Safestay hostels in London and Barcelona, this means ten hostels are now or will temporarily close and eight remain open. Our hostels in Madrid, Barcelona PDG, Barcelona Sea, Lisbon, Prague and Bratislava are now closed and the Athens and Pisa hostels will close from November. The closures reflect the fact the income they are currently expected to generate won’t cover the variable costs of keeping them open. However, the experiences this year have meant the group is now adept at reopening hostels and will do so as soon as localised restrictions are lifted and viable demand for the individual sites returns. In light of the ongoing challenging trading conditions, further discussions with landlords, together with existing rent reductions and deferments, have resulted in a 50% reduction in rental payments between 1 August and 31 December 2020. The general reduction of costs and the closure of 55% of the company’s bed stock together mean that the forecast cash position remains unchanged.” Chairman Larry Lipman said: “Taking our bed stock down to 45% is the right decision for the business in this extraordinary market, underlined by the fact that despite closing these sites we are not changing our forecasts. I am hopeful the coupling of salary reductions with share options will prove to be a beneficial structure, and when the current crisis passes we can get back focussing on the growth of Safestay.”

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