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Spirit Group completes £2.1bn recap

The UK pub group backed by Texas Pacific, Blackstone, CVC and Merrill Lynch has taken advantage of liquid debt markets to fund the UK’s largest recapitalisation of a private equity-owned business.

A core bank syndicate comprising Barclays Capital, Citigroup, Goldman Sachs, Royal Bank of Scotland and Merrill Lynch have acted as lead arrangers of the £2.125 billion (€3.1 billion; $4.1 billion) refinancing of the Scottish & Newcastle pubs estate owned by the Spirit Group.
 
The pub group was acquired for £2.5 billion in October 2003 by the Spirit Amber consortium, led by US buyout firms Texas Pacific Group and The Blackstone Group and which also included CVC Capital Partners and Merrill Lynch Global Private Equity.
 
The refinancing, the largest ever arranged for a private-equity backed business in the UK, consists of a number of levels of financing.

The structure comprises five tranches of debenture bonds totalling £1.25 billion that are secured on 1,080 pubs.
 
In addition, senior bank financing consists of £550 million of term debt; a working capital facility of £50 million secured on 951 pubs and a junior ranking charge on the rest of the portfolio. Finally, the subordinated bank financing consists of a £275 million term facility.
 
According to a source close to the deal, refinancing the business had always been a likely option given the original capital structure  used to finance the acquisition. Subsequent developments, including the sale of 141 hotels from the portfolio to leisure group Whitbread in July this year for £536.2 million, allowed Spirit to arrange long-term financing for the managed pubs estate, the source said.
 
Commenting on the transaction, Marcus Mackenzie, London-based partner at global law firm Freshfields Bruckhaus Deringer, who led the team that advised the syndicate, said that availability of demand for this kind of paper had been an important factor in the timing of the refinancing.
 
Mackenzie also said in a statement: “This structure will deliver stability and flexibility to the financing of Spirit’s pub portfolio over the medium term, while preserving freedom for Spirit to manage its portfolio, something the group values highly.”

In separate news, Coral Eurobet, the UK betting shop chain backed by Charterhouse, has completed a £1.25 billion refinancing. Since its acquisition by Charterhouse two years ago, the company has returned £560 million to shareholders.

Chartherhouse retains a 75 percent stake in the business and has already recouped more than its original equity investment of £278 million.
 
The transactions highlight the readiness of private equity firms to take advantage of highly liquid debt markets, not only to finance acquisitions, but also to recapitalise portfolio companies.