NEW YORK, Oct 1 (LPC) - Jefferies, a long-standing lender to Tilman Fertitta’s Landry’s Inc, has committed US$300m in debt financing to fund the restaurateur’s acquisition of Del Frisco’s’ steakhouse business from private equity firm L Catterton, three sources familiar with the transaction said.
The acquisition expands Fertitta’s hospitality and entertainment portfolio, which already comprises Landry’s, National Basketball Association team the Houston Rockets and the Golden Nugget Casino.
Fertitta, who will pick up the Del Frisco’s Double Eagle Steakhouses and the Del Frisco’s Grilles brands, announced the acquisition on September 25, the same day L Catterton completed its US$650m purchase of the publicly-traded Del Frisco’s Restaurant Group.
L Catterton will retain ownership of the Bartaco and Barcelona Wine Bar brands.
For Fertitta, the purchase of Del Frisco’s’ steakhouses is an effort at least seven years in the making since the company tried to acquire the restaurants before the group went public in 2012.
After L Catterton agreed to buy the business in June, Fertitta saw an opening to own the long sought-after assets as the company shifted into private equity hands, sources said.
“There was a realization that the steakhouse part of the business was becoming available and he (Fertitta) made a quick grab for it,” said one investment manager familiar with the transaction.
Jefferies chief executive officer Richard Handler, meanwhile, has maintained close business ties with Fertitta, putting the independent investment bank in prime position to lead the acquisition financing on behalf of Landry’s, sources said.
The bank has done deals for Fertitta’s businesses since as early as 2015, including leading in September 2017 a US$1.08bn incremental term loan for hotel and casino operator Golden Nugget and was mandated again in April 2018 to reprice the same term loan.
A potentially new transaction to support the Del Frisco’s buy could see Fertitta tack extra leverage onto one of his existing businesses, the sources said.
Jefferies declined to comment, while spokespersons for L Catterton and Landry’s were not immediately available for comment.
Funding for L Catterton’s acquisition of Del Frisco’s was subsequently withdrawn from the syndicated bank loan market in light of the steakhouse portion of the business changing hands, sources said.
The US$425m term loan B, rated B3 by Moody’s Investors Service and B- by S&P Global Ratings, was offering investors 700bp over Libor at a discount of 97 cents on the dollar, banking sources said.
Despite the juicy spread being roughly 200bp-230bp wider compared to other single-B rated loans in market in September, the Del Frisco’s proposed transaction was a tough sell to some lenders. Investors are wary of businesses exposed to a downward shift in the economic cycle, such as hospitality and retail, which rely on healthy consumer spending.
“It blows my mind there is a bid (on loans) for restaurants right now. I can make an exception for scalable fast food deals but otherwise, no bid,” said a portfolio manager that looked at the deal.
The restaurant group’s high adjusted debt-to-Ebitda was also concerning for investors, with S&P Global estimating it between 7.0-7.5 times this year, according to a September 9 report from the ratings agency.
Credit Suisse was leading the US$425m transaction for Del Frisco’s, while Jefferies, Societe Generale and Citizens Bank were arrangers.
Spokespersons for Credit Suisse and Citizens Bank declined to comment and Societe Generale did not immediately respond to a request for comment. (Reporting by Leela Parker Deo and Aaron Weinman. Editing by Michelle Sierra)