September 25, 2015 / 12:46 PM / 3 years ago

Finance returns the favour and snubs Soho House

LONDON, Sept 25 (IFR) - Soho House, the private members club that is famously resistant to financial professionals, faced an equally frosty reception from fixed income investors this week.

The private equity backed UK firm had to pull a planned £200m high-yield bond after investors baulked at the company’s high leverage and limited free cashflow.

The London investor meetings took place in Shoreditch House, a venue which bond experts might ordinarily struggle to gain access to.

“There is no strict anti-banker policy but our clubs are very much rooted in the creative industries,” a Soho House spokesperson told Reuters in 2011.

The irony was not lost on some in the market.

“It’s pretty funny,” said one bond investor. “They say that we’re not cool enough to join their club but they’re perfectly willing to take our money when they need it.”

A second investor summarised the situation even more succinctly: “We don’t want you; we want your money!”

Many investors raised eyebrows at the roadshow’s casual dress code, which explicitly forbade wearing ties.

“I never wear one for meetings but I’m thinking of wearing one tomorrow just to see if they actually let me in or not,” said a third investor ahead of the meetings.

Another investor said the meeting itself was held in a “cozy” room with sofas, followed by a tour of Shoreditch House.

“People were asking question around how their exclusivity works,” they added. “The interesting thing is that they have a pretty long wait list, so in a deteriorating scenario they could in theory monetise that.”

As of June 2015, Soho House had over 50,000 members, with a global waiting list of over 30,000 potential members.

HIGHLY LEVERAGED

A number of investors said that while they liked the trends of the underlying business, it was not appealing from a debt investor standpoint.

“While this makes for an attractive equity story, high yield investors should remain focused on cash flow,” said a credit analyst. “In the end we feel investors are being asked to take equity-like risks for a high yield return.”

Soho House was looking to refinance a £145m 9.125% 2018 bond callable in October 2015 with a new £200m five-year non-call two senior secured note.

Price talk was set at 8.75% area before the deal was pulled, with sources close to the deal saying that as yields drifted wider the economics of calling the existing bond made less sense.

Soho House was facing a £9.9m redemption premium for repaying the 2018 bonds before maturity.

Ultimately, the company’s leverage was a stumbling block for many.

Soho House pegs its net debt to Ebitda at 6.6x, but its Ebitda figure has large adjustments based on management’s estimates of how its recently opened members clubs will perform. The debt figure also does not include leases, which the majority of the company’s properties are under.

This means that many in the market pegged the company’s true leverage around the 9x mark.

A fifth investor said Soho House’s cold shoulder to financial services professionals is paradoxically “why finance guys loves it.”

“They just have more economic sense than to lend to a business with almost 9x leverage and limited free cashflow.” (Reporting by Robert Smith)

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