Apollo initiates Tragus restructuring

A group led by distressed debt investor Apollo has launched Company Voluntary Arrangements (CVAs) for Tragus and its restaurant brands, Café Rouge and Bella Italia.

Apollo Global Management-owned Tragus Group, which runs the UK dining chains Café Rouge and Strada, has initiated a restructuring which could see its debt pile cut by around £263 million (€324 million; $441 million), according to statements on Wednesday.

A group led by US distressed investor Apollo Global Management, which seized control of Tragus from The Blackstone Group a couple of months ago, is planning to use a debt-for-equity swap to cut borrowings from £354 million to £91 million. It has committed new money of £20 million and is in talks to sell the Strada chain, which operates 56 restaurants.

The Blackstone Group acquired Tragus in late 2006 at the height of the buyout boom, paying £267 million to previous owner Legal & General Ventures in a deal which included £167 million of debt. Blackstone became the group's third private equity owner (LGV acquired the company from ECI Partners in 2004). Seeking to narrow its loss on its investment, Blackstone bought up some of the company's debt on the secondary market at a large discount, before selling that, in addition to its equity stake, to Apollo earlier this year sources confirmed. Apollo has since been working on the restructuring proposals. 

Detailed compulsory voluntary arrangement (CVA) proposals have been made available to Tragus creditors including landlords today. Approval from 75 percent of the group’s creditors would enable Tragus to reduce and restructure some of its rent obligations at Café Rouge and Bella Italia, another of its businesses. If passed, Tragus could continue to trade under the CVAs for a two year fixed period. A vote has been set for 20 June 2014.

Steve Richards, chief executive of Tragus Group, said in a statement: “The plan we have announced today is crucial for reducing the Group’s unsustainable level of debt, providing the right operational structure for the business and securing a strong and sustainable future for Tragus and all of our brands. We hope that creditors will accept our proposals which will provide us with the necessary financial strength to be able to access new market opportunities and resume growth and development in our core estate to the benefit of all of our stakeholders.”

As part of the proposed CVAs, Tragus has set out its plans for the next five years. Subject to completion of the restructuring process, the group plans to open 12 Bella Italia sites in the next 12 months, and 50 more over the next five. £110 million of investment in Bella Italia and Café Rouge is expected over the next five years.

Landlords on 19 properties have been asked to reduce rent to 60 percent of current levels for two years, while on another 32 properties, landlords have been asked to reduce rent to 50 percent of current levels for three months. Tragos operates 290 sites across the UK.

Debt advisory firm Zolfo Cooper is advising Tragus on the restructuring and is running a process to identify an appropriate buyer of Strada, which it expects to complete by the end of summer.

Peter Saville, Alastair Beveridge and Catherine Williamson of Zolfo Cooper’s restructuring services team will act as nominees for the proposed CVAs.