Food Delivery Brands (FDB), a company that manages brands such as Telepizza, Pizza Hut, Jeno’s Pizza and Apache in 32 countries, managed this past Monday to defer the 12 million euros that it had to pay in interest for its bond issue of 335 million euros launched in 2019. Bonds that have become a real headache for the current owners of Telepizza, the venture capital fund KKR, which together with Artá Capital, Torreal, Altamar and Safra Group launched a takeover bid for 604 million euros (at a price of six euros per share) that put an end to the presence of the fast food multinational on the Spanish stock market. A firm that employs 45,000 people and has 2,300 restaurants around the world.
This bond issue, which is redeemed in 2026, offered, when interest rates were lower than current ones, a coupon of 6.25%, indicating that the operation was not without risk. The money raised in this issue went both to cover part of the purchase of the company and to distribute a dividend of 131 million euros among the partners. A fairly common practice among this type of investors. “I am not a great friend of venture capital funds, since many times the business is not the most important thing for them, but the profitability they obtain after cleaning up or making up the company,” explains the professor from the Institute of Stock Market Studies (IEB). ) Diego Pitarch.
Undoubtedly, the forecasts of KKR and its partners in terms of generating money to meet their financial costs painted a rosier picture, but the covid pandemic arrived in 2020 with the forced closure of premises and in 2022 very high inflation that has harmed their margins (increase in the cost of raw materials such as flour or electricity). Food Delivery Brands managed to bill 958 million euros in the first nine months of last year, 18% more than in 2021 and 4.6% more than sales in 2019. The business is going well, but the results are not so much: the ebitda (operating profit) fell 6% from January to September to 28 million euros, with a forecast to end the year 2022 at around 36-39 million, according to the company itself.
Deal with Yum! brands
Insufficient figures to meet its debts and, in addition, assume the commitments reached in 2018 with Yum! Opening brands of 1,300 stores in 10 years. That year, after a big deal with Yum! Brands, Telepizza became its master franchisee in Latin America (except Brazil), the Caribbean, Spain, Portugal and Switzerland. An agreement that the current owners are also negotiating and that, according to sources close to the operation, is on the right track. Once again, the covid or the war in Ukraine itself are arguments for the parties to be flexible and allow the terms of the commitments acquired to be extended.
As of the end of last September, Food Delivery Brands’ total net debt number stood at $412.7 million and continued to grow. The bulk is made up of the aforementioned bond issue of 335 million, to which must be added 45 million bank loans and a loan from the Official Credit Institute (ICO) for a value of 39.2 million, the latter within the Government framework for action to give oxygen to companies due to the paralysis of the pandemic. The owners of Telepizza also lent 42 million to the company, but it has already returned almost everything: there are only 3.8 million pending. At the end of the third quarter, the liquidity of the company’s cash was 26.5 million.
Putting the accounts in order also seems to be a trend in the business community due to the rise in interest rates and also the effect that the expected economic slowdown has on company results. As Professor Pitarch explains, the sale of assets is one of the options to reduce debt “since we have gone from many years of abundant and cheap money to a period of greater restrictions and now with much higher rates.” And he adds: “The situation has changed, and also for banks, which since the 2008 crisis have fled from accumulating assets that only generate costs. Now, financial entities, when they refinance, thoroughly analyze the feasibility plans and see which sectors can survive or not”, he concludes. Bank refinancing seems more difficult in this specific case and the strategy is to incorporate new partners to the capital.
The CEO of Food Delivery Brands, Jacobo Caller (appointed in 2021 to replace Pablo Juantegui), has hired Kirkland & Ellis and Uría Menéndez as legal advisors and Houlihan Lokey as financial advisor to reorganize his debt. The secrecy reigns in the conversations between the bondholders and the company to reach an agreement. Sources close to this operation, who see the final resolution very soon, suggest that the bondholders will end up converting their debt into Telepizza capital. An important first step, after ruling out other options such as a debt relief.
According to these sources, the venture capital firms Oak Hill, Fortress, Blantyre and HIG Capital would control 70% of the issue of 335 million euros and, therefore, would be the interlocutors in the negotiation. A percentage that has been increasing in the bond market as the price of those bonds plummeted due to the company’s financial uncertainties. Neither the banks nor the Stock Market (via capital increases) would be the saviors of the FDB accounts: venture capital would save venture capital itself. Of course, the conditions and percentages of capital that the new partners will reach and, therefore, the dilution of the current ones is the heart of the negotiation before the last heading. In a few days the enigma of whether the most famous Spanish pizza will continue to rotate will be solved.
Game between big investors
The experience of private investors with Telepizza in its second IPO in 2016 was not positive at all. The company (controlled at the time by the Ballvé family, Permira and also KKR) was listed at 7.75 euros and fell 19% that same day. It never returned, in the three years that it was listed, to recover that level, and the exclusion bid was made at a value of 6 euros.
In this new financial crisis caused by an adverse economic context and by the distribution of a generous dividend among its shareholders, there are no particular victims. The issued bonds themselves were launched among professional investors and now it is they who are affected by the restructuring and the agreement with the current shareholders. A financial game that is settled between large investors who are perfectly aware of the risks they assume.
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