Termsheet: Soho House points

 When private members’ club Soho House examined an additional high-yield bond issuance in 2015 to raise capital, it was met with more than a little snickering by some. The issuer, which describes itself as a members’ club for those in creative industries, had built up a reputation of being somewhat hostile to those working in finance.

The irony was not lost on financiers. The company, which had previously done its best to exclude such professionals from its membership, was now turning to the sector for a capital raise. Anecdotal reports emerged noting that no ties could be worn at one investors’ meeting – prompting a few chuckles.

The company eventually pulled back from the high-yield issuance. Reports suggested potential investors had shied away because of the company’s leverage levels and lack of free cashflow. Concerns around macro-economic issues – this was the era of the Greek sovereign debt crisis after all – may also have played a role in the decision.

Prior to all of this, however, private debt manager Permira Debt Managers had participated in an earlier high-yield issuance from Soho House – investing in the borrower in 2013. More recently, the firm embarked on its largest private debt deal to date, providing Soho House with a refinancing worth up to £375 million ($481 million; €440 million).

The refinancing consists of £275 million provided upfront, with the borrower having the ability to call on a further £100 million should it need to. It redeems Soho House’s outstanding debt. It also means the borrower is now only working with one lender – a preferable situation for a company in growth mode.

Soho House’s goal in taking on the financing is to quickly grow its global brand. For this reason, having access to a £100 million facility to facilitate growth is another attraction of the financing.

Permira previously told PDI the pull-back from the debt issuance in 2015 showed many potential investors didn’t understand the value proposition offered by Soho House. Rather than concerning themselves with the company’s leverage or cashflow metrics, Permira is attracted by its story and future plans. Furthermore, it’s attracted by Soho House’s year-on-year increase in number of members, as well as its revenue growth. 

In addition to participating in the high-yield issuance in 2013, Permira also extended a mezzanine loan to the company in 2015. That investment allowed it to familiarise itself with Soho House and its plans.

The recent investment has been made from a number of Permira vehicles, including the Permira Credit Solutions III fund. The offering launched in 2016 with a target of €1 billion and subsequently held a close on €900 million at the end of the year. The fund’s predecessor was also involved in lending to Soho House as part of this deal, according to Permira’s website.