RLPC-Telepizza dodges debt restructuring with new loan refinancing

LONDON, July 29 Tue Jul 29, 2014 12:42pm EDT

LONDON, July 29 (Reuters) - Struggling Spanish pizza delivery business Telepizza is set to refinance existing loans with a new first lien loan and a new Payment In Kind (PIK) loan that will help it escape an expensive debt restructuring, banking sources said on Tuesday.

The refinancing will repay most lenders in full. Most of an existing PIK loan will be swapped for equity and private equity firm KKR is making a new 180 million euro investment in the company.

Private equity firm Permira bought Telepizza in 2006 for 962 million euros ($1.31 billion). The business was hit by a slowdown in consumer spending during the eurozone crisis and has been looking at ways to manage its 575 million euro debt.

After the refinancing, Permira will own a 55 percent stake in Telepizza, KKR will own 36 percent and former PIK lenders will own 9 percent.

Morgan Stanley and KKR Capital Markets are leading the refinancing and a call was held with lenders on Tuesday, the banking sources said.

Permira and KKR declined to comment.

The refinancing is proposing to repay lenders to the existing 325 million euro senior and second lien loan and the 150 million euro mezzanine loan at par, or face value. Investors will then be able to recommit to the new deal.

This result is a victory for lenders that stuck with Telepizza. Several lenders sold the loan at around 80 percent of face value in the last year to cut exposure to risky credits, the bankers said.

Telepizza's secondary loan price jumped after news of the refinancing. The second lien and mezzanine loans were quoted at around 90 percent of face value on Tuesday, up from 80 and 75 respectively on Monday, a loan trader said.

Lenders to the existing 100 million euro PIK loan are talking to Permira about the level of losses to be taken in the debt for equity swap.

Around 85 million euros of the 100 million euro PIK loan will be equitised, the bankers said. The PIK loan was trading at around 18 percent of face value on Tuesday, according to Thomson Reuters LPC data.

The PIK investors and Permira are close to reaching an agreement on the PIK loan debt for equity swap, which is necessary to complete the refinancing.

"From a sponsor and PIK investor point of view they have to get a deal agreed. Neither party can allow negotiations to fall through, otherwise they will all get wiped out," one banker said.

NEW STRUCTURE

The refinancing will consist of a 335 million euro first lien loan with leverage, or debt to earnings, of around 4.5 times. Leverage on the total debt package is 7.5 times, bankers said.

The refinancing will leave around 25 million euros of cash on Telepizza's balance sheet.

A new deeply subordinated 205 million euro PIK loan is also included. 180 million euros will be provided by KKR, Permira will contribute 10 million euros and 15 million euros will come from the existing PIK lenders that will have a 9 percent warrant attached, the bankers said.

Permira will also contribute 40 million euros to Telepizza in exchange for retaining an equity stake in the business. Permira bought the 40 million euros of Telepizza's debt when Telepizza's loan was amended and extended in June 2012, the banking sources said.

The new PIK loan is an expensive quasi-equity instrument, which allows Permira to keep a stake in Telepizza and KKR to make substantial gains if the company is sold.

KKR is investing via its $3.8 billion special situations fund which has a portfolio of high risk and high reward assets.

KKR provided a similar 220 million euro quasi-equity PIK loan to Swiss vending machine business Selecta in June, which also helped it to avoid a debt restructuring and owner Allianz Capital Partners (ACP) to keep a stake in the company. (Additional reporting by Robert Smith; Editing by Tessa Walsh)

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