Billionaire Issa brothers make fresh bid for Caffe Nero

BELFAST, ANTRIM, UNITED KINGDOM - 2020/12/22: A couple wearing face masks as a precaution against the spread of covid-19 walking past the Caffe Nero Coffee Shop. (Photo by Michael McNerney/SOPA Images/LightRocket via Getty Images)
City sources said that the “aggressive move” would leave Caffe Nero cornered if it were to default on its £350m debt pile. Photo: Michael McNerney/SOPA Images/LightRocket via Getty Images (SOPA Images via Getty Images)

Moshin and Zuber Issa, the billionaire brothers that are behind grocery retailer Asda, have made a fresh bid to take control of troubled coffee chain Caffe Nero.

They are currently in talks with Alcentra and Partners Group to purchase company loans totalling £180m ($252m), the Sunday Telegraph first revealed.

City sources told the newspaper that the “aggressive move”, which would be made in partnership with TDR Capital, would leave Caffe Nero cornered if it were to default on its £350m debt pile.

If the Issa brothers owned the loans it would leave them in a position to make a bid for control through a debt-for-equity swap. However, at this point in time there is no certainty that a deal will be agreed.

According to banking insiders, it is believed that Caffe Nero could breach its covenants this summer after a year of lockdown restrictions exacerbated the company’s woes.

However, sources close to the chain insisted that the company does not expect to breach banking covenants this summer, the Telegraph said.

One insider added that the Issa brothers had previously approached bank lenders including HSBC (HSBA.L), Santander (SAN), Lloyds (LLOY.L) and Rabobank to acquire their debts, but was rejected.

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In November last year, EG Group, which is the petrol retailing giant led by the brothers, launched an initial takeover offer and wrote to the ailing retailer, proposing to buy Caffe Nero from Gerry Ford, founder and controlling shareholder.

The privately owned group, which is one of the biggest coffee shop operators in the UK, employs around 5,000 staff. It sought to reduce its rent with its landlords through a company voluntary arrangement (CVA).

A CVA is a formal agreement between a business and its creditors which gives firms the chance of recovery. It sets out how repayments of company debts should be made to creditors and can deliver a better outcome than an administration or liquidation. After 14 days creditors are asked to vote and at least 75pc must agree.

CVAs have become increasingly popular over the last few years as Britain’s high street suffers from declining footfall, increased business rates and the rise of online shopping. The coronavirus pandemic has only heightened the issues retailers are facing.

READ MORE: How CVAs are reshaping Britain's high streets

The news comes days after the billionaire brothers completed a £6.8bn deal backed by private equity company TDR Capital to buy supermarket chain Asda from US owner Walmart (WMT).

The move means the grocer has returned to majority UK ownership for the first time in two decades.

The Lancashire-based brothers, who started their business 20 years ago, were both made CBEs on the back of the news.

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