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Carlyle positions for possible Prezzo takeover through debt

Ayesha Javed
Carlyle has bought more than a third of Prezzo’s senior ranking loans - Andrew Crowley

US private equity firm Carlyle Group is positioning itself to possibly wrest control of Prezzo, as the troubled restaurant chain negotiates with creditors to secure some breathing room on its debt covenants.

Carlyle has bought more than a third of Prezzo’s senior ranking loans, which would allow it to block company requests to creditors, since they typically require support from two-thirds of the lenders to secure approval.

The move comes as Prezzo attempts to persuade creditors to pause test to its loan agreements ahead of an expected debt restructuring.

The company is taking a three-pronged approach to its turnaround by reducing its restaurant estate, overhauling its capital structure and reassessing its business strategy.

Prezzo said in March it would close 94 sites as part of a Company Voluntary Agreement - a form of insolvency that allows a business to keep trading - after securing creditor approval. Lenders also agreed to waive a covenant breach in December.

The Italian restaurant chain, which is currently owned by another US buyout house, TPG Capital, is also revamping its remaining outlets, from menus to lighting and layout, as well as focusing on staff retention. A spokesman for the company said that it had the liquidity to make the improvements it needed.

Prezzo is expected to return to creditors with a plan to restructure its £154 debt package in due course, which would give US private equity behemoth Carlyle an opportunity to swoop for control of the business through a debt-for-equity swap. It currently owns £43m of the company’s loans.

Carlyle acquired its stake in the debt from two banks, which are typically less inclined to take ownership of the companies that they lend to. Other credit funds and hedge funds are also understood to have holdings in the company’s debt.

News of Carlyle building a stake in Prezzo was first reported by Reorg Research.

According to the company’s CVA documents, Prezzo owes around £600,000 in unpaid electricity bills to British Gas, £364,000 to Reynolds ­Catering Supplies, a fruit and vegetable wholesaler, and almost £120,000 to furniture company Boston Interiors. A Prezzo spokesman said in March that the company was paying creditors and suppliers back as normal.

Britain’s restaurant chains have come under pressure from rising wage costs and business rates. Jamie's Italian, Byron and Strada are among others that have been forced to close sites and secure lower rents on others this year to avoid disappearing altogether.