| LONDON, July 29
LONDON, July 29 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
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
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
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)