Silverfleet's troubles not Paramount

Silverfleet Capital has called in debt advisers for its portfolio company Paramount Holdings, a UK-based restaurant group that saw its pre-tax loss increase to £27m in the year to June 2008, up from £12m the previous year.

While the news is not good for the European mid-market player, it is also not disastrous. "The vast majority of our existing portfolio is trading well, and was mostly constructed in 2003-2006," says managing partner Neil MacDougall, speaking of eight companies that have an average net-debt-to-Ebitda ratio of 4.4x at December 2008.

Moreover, the firm's last 15 exits generated EUR2.4bn in proceeds for investors, corresponding to 2.9x cost and a gross real IRR of 34%. To boot, the investor made just one investment in 2007, which MacDougall admits will have a "tough year ahead", and spent 2008 firmly in exit mode, selling Benelux business TMF to Doughty Hanson for 6.1x money, and Jost World to Cinven for 3.2x.

"Paramount is cash generative and well-run at the operational level. But it is simply suffering a downturn in trading, so it makes sense to call in advisers," MacDougall says, adding that the downturn in trading is endemic in UK restaurants.

Silverfleet invested in Paramount in September 2006 as part of a £107.5m buyout. Royal Bank of Scotland, Barclays and HSBC provided debt for the deal. At the time, Paramount operated 77 restaurants under the brands Chez Gerard, Brasserie Chez Gerard, Bertorelli, Caffe Uno, Livebait and Cafe Fish.

Silverfleet was formerly the private equity arm of Prudential and invested primarily on behalf of the UK Life Fund. MacDougall states that the firm has money to invest in its existing portfolio as well as a new fund. "We need to invest EUR200m per annum to get our capital deployed," he says.

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