The Restaurant Group undertakes financial restructuring

August 2020 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

August 2020 Issue

UK-based The Restaurant Group has announced it plans to close 125 of its underperforming restaurants in a significant cut to the size of its estate.

The COVID-19 pandemic and lockdown has had a dramatic impact on the country’s mid-market casual restaurant sector, forcing companies to reduce their cost base and downsize operations. It is believed that 2000 to 3000 employees could lose their jobs as a result of the closures announced by The Restaurant Group.

According to a statement from the company, it will use the often-controversial company voluntary arrangement (CVA) to restructure its business, an insolvency proceeding that allows businesses to renegotiate debts with creditors. A number of restaurant chains in the UK, including Byron and Prezzo, have utilised CVAs in recent years.

The CVA will be proposed by TRG UK, a subsidiary of The Restaurant Group. In total, the company has identified 210 underperforming locations, including those on unfavourable lease terms or that are not expected to generate future profits. Of these, it has marked 125 for closure, while it will look to reduce rent costs at a further 85. The business will be left with around 160 outlets across the UK. Most of the closures will come from the company’s Frankie & Benny’s chain of restaurants. Wagamama, the pan-Asian restaurant for which the company is perhaps most famous, will not be affected by the CVA, having bucked a wider industry downturn since The Restaurant Group acquired the company for £559m in 2018.

“The issues facing our sector are well documented and we have already taken decisive action to improve our liquidity, reduce our cost base and downsize our operations,” said Andy Hornby, chief executive of The Restaurant Group. “The proposed CVA will deliver an appropriately-sized estate for our Leisure business to ensure we are well positioned despite the very challenging market conditions facing the casual dining sector. I would like to wholeheartedly thank all of my TRG colleagues for their continued understanding and extraordinary commitment during this unprecedented period.”

Surprisingly the company’s statement to the stock market included a message from Melanie Leach, chief executive of the British Property Federation, in what appeared to be an attempt to show The Restaurant Group’s landlords that it had tried to be conciliatory in its demands for haircuts in the CVA.

“These situations are never easy, particularly now for the retail and hospitality businesses on our high streets at the sharp end of the Covid-19 pandemic,” said Ms Leech. “Property owners, however, need to take into consideration the impact on their investors, including the millions of people whose savings and pensions are invested in commercial property, as they vote on any CVA proposal.

“The Restaurant Group and Alix Partners engaged with the BPF before launching this CVA proposal. This has provided us an opportunity to improve understanding of property owners’ interests and concerns, but ultimately it will be for individual property owners to decide how they will vote on the CVA,” she added.

The COVID-19 pandemic has had a catastrophic impact on the hospitality sector. The industry, which employs 10 percent of the UK workforce, has been one of the hardest hit in the UK economy. The sector saw sales decline 21.3 percent in the first quarter of 2020 as the country moved into lockdown, according to the UKHospitality Quarterly Tracker.

However, The Restaurant Group’s financial difficulties pre-date the outbreak. In February, the company announced plans to suspend its dividend and cut the size of its estate. In March, it closed 60 of its Chiquito Mexican-style outlets, as well as its chain of pubs Food & Fuel, and placed around 22,000 staff on furlough. The group raised £57m via a share placing in April, after warning that it expected its sales to halve this year. It had envisaged reopening 400 of its 600 stores across July to December, however that is no longer possible.

Richard Summerfield