January 25, 2018 / 4:12 PM / 9 months ago

LPC-Prezzo holds talks with lenders as loans drop in value

LONDON, Jan 25 (Reuters) - British restaurant chain Prezzo is in talks with its lenders after the price of its leveraged loans dropped in Europe’s secondary loan market, as the UK casual dining sector comes under pressure.

Private equity firm TPG acquired Prezzo in 2014, backed with a £155m leveraged loan financing, comprising a £130m term loan and a £25m pound revolving credit facility led by Barclays and Jefferies.

Prezzo’s term loan was quoted at around 80% of face value on January 25, according to Thomson Reuters LPC data.

The loans have been in gradual decline since last year, closing the first quarter of 2017 at 98.4% of face value, before dropping to 88 at the end of the second quarter and 86 at the end of the third quarter, TRLPC data shows.

Given its performance, some banks have moved Prezzo’s loan from the front office to the work out groups, the sources said.

Talks took place with lenders this week to discuss some of the issues, the sources said.

Some lenders speculated the company would be seeking a waiver on its financial covenants, the sources added.

TPG declined to comment.

GRIND TO A HALT

The loans attracted the attention of hedge funds last year which began to buy into the stressed credit but trading came to a near halt this week, traders said, until there is more clarity on the outcome of the talks.

“Hedge funds buying into Prezzo last year are now waiting for the price to drop lower. A majority of hedge funds think it has more room to go on the downside,” a trader said.

While one or two lenders sold out of their positions at the end of last year, a number of original lenders are holding onto the paper, hoping the situation will improve, the sources said.

“Since the call with lenders there has been no bid. People want clarity on what the sponsor and company will do to turn things around. At the moment it is all looking pretty desperate,” a second trader said.

Consumer spending has come under pressure as people cut back on discretionary spending amid wider macroeconomic volatility. The restaurant sector has also faced increasing pressure on rising food costs after the UK voted to leave the European Union, the sources said. (Editing by Christopher Mangham)

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