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Morning Briefing for pub, restaurant and food wervice operators

Sun 19th Mar 2017 - Soho House set to secure £275m debt deal with private equity firm
Soho House set to secure £275m debt deal with private equity firm: Soho House is close to shoring up its creaking balance sheet through a £275m debt deal with a private equity firm. The private members’ group, founded with one club in London in 1995 aimed at those working in creative industries, is understood to be in the final stages of negotiating a loan from Permira Debt Managers. It is expected to give notice tomorrow (Monday, 20 March) it plans to use the Permira money to repay £152.5m of existing bonds and £40m of high-interest payment in kind notes. The company’s founder, Nick Jones, has turned Soho House into an empire, opening 18 clubs in locations around the world. Its membership has reached 65,000 and it boasts a 40,000-long waiting list. But rapid growth has put strain on its finances. Soho House bonds have been repeatedly downgraded by rating agencies. The loan from Permira is likely to run for five years. The private equity firm is expected to provide a £275m facility, with up to a further £100m if needed. A source told the Sunday Times the refinancing was a sign the business, now majority-owned by the US billionaire Ron Burkle, was “growing up” as it prepares to open clubs in Mumbai, Brooklyn, Amsterdam, downtown Los Angeles, Texas and Hong Kong. It is also due to open its first City site, the Ned hotel, in May. Latest accounts filed with Companies House showed Soho House had an injection of £40m to finance more expansion after increased operating losses. Its parent company SHG made an operating loss of £11.8m in the year to January 31 2016, after including £15.6m of depreciation and amortisation costs, compared with an operating loss of £577,000 in the prior period. The company did make a pre-tax profit of £1.96m, but only thanks to £13.8m that flowed into the business from the sale of a 50% stake in its Pizza East, Dirty Burger and Chicken Shop chain of restaurants to a private investor. Sector investor Luke Johnson has said the opening of The Ned may signal “peak club” in London but the urge to be a member of a club is a “powerful one”. Writing in his Sunday Times column, he said: “I joined the Groucho Club the year it was formed, soon after I came down from Oxford. It was invented as an alternative to the stuffy gentlemen’s clubs of St James’s, and was the first of a new generation of such organisations. Ten years later, Soho House was founded, similarly aimed at those working in the creative industries. Since then it has boomed and become a world leader, offering not just food and drink but cinemas, workspaces, spas and bedrooms. There are about 20 branches, from Istanbul to West Hollywood. And later this spring it will open a giant club and hotel with eight restaurants and more than 250 bedrooms called The Ned in the old Midland Bank building in the City. I suspect this enormous edifice might signal “peak club” in London. It has become hard to keep up with all the members’ clubs. The old-school clubs are almost always, in effect, mutuals owned by their members, while the clubs created from the 1980s onwards are businesses with external shareholders. In principle, this business model is an attractive one – members don’t just pay to eat, drink and sleep, they also pay a hefty annual subscription. Often this can be £1,000 a year or more, representing a wonderful 100% gross margin annuity profit stream for the proprietor. But by being exclusive, clubs cannot admit any old patron who wants to spend money. There must be sufficient member usage to keep the premises lively and the dining rooms and bars busy. In truth, I get poor value from the several clubs where I am already a member – as I prefer new restaurant and bar openings when I go out. Yet the urge to be a member of a club is a powerful one – and I shall not be resigning from my clubs just yet.”

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