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Duke Street takes over Payzone in debt restructure

08 February 2010  |  4266 views  |  0 Source: Payzone

Payzone plc (the "Company"), together with its subsidiaries (the "Group"), announces today that agreement has been reached between Duke Street and the Group's banking syndicate (the "Syndicate") on the terms of a debt and share capital restructuring (the "Restructuring"), which will provide the business with a more appropriate long-term capital structure. The restructuring will involve the appointment of receivers to the Company and the disposal of the direct subsidiaries of the Company to a newly formed company.

Following the Restructuring, Duke Street will have a controlling stake in the business and the amount of debt owing to the Syndicate will be reduced from €320m to €82m. Shareholders in Payzone plc will not have an ongoing interest in the business.

The Restructuring will be implemented by means of a disposal of the subsidiaries of the Company to a newly formed company. Accordingly, the Syndicate has appointed Alan Hudson, David Hughes and Niall Coveney of Ernst & Young LLP as joint receivers to the Company (the "Joint Receivers") under the terms of the current security agreements. The Joint Receivers will execute the transaction described below.

Trading in the Company's ordinary shares on the Alternative Investment Market of the London Stock Exchange ("AIM"), was suspended earlier this morning, and is expected to be cancelled, following the completion of the transaction.

The Joint Receivers have entered into agreements to dispose of the entire issued share capital of the two subsidiaries of the Company, Cardpoint Limited and Alphyra Holdings Limited, and to novate the intercompany debt owed to the Company by its subsidiaries to a newly-formed group of companies, controlled by Duke Street (the "Purchasing Group") in return for the consideration and assumption of part of the Group's debt as described below. On completion, the Purchasing Group will be the new owner of all the operating subsidiaries of the Company (the "Continuing Group"), which will continue to trade as usual and will maintain existing relationships with customers, suppliers and employees. None of the Company's subsidiaries have been placed into administration or any other insolvency process.

As part of the Restructuring, Duke Street will invest €45m in the Continuing Group. The Continuing Group will assume approximately €109m of bank debt and guarantees owed to the Syndicate, of which €27m will be repaid by the Continuing Group out of the funds invested by Duke Street. The funds invested nds invested by Duke Street will also provide working capital to the Continuing Group in addition to €11m of headroom in the form of an RCF provided by the Syndicate. The Syndicate will acquire a 16% interest in the Purchasing Group, with the balance being held by Duke Street (69%) and by certain of the current senior management of the Company (15%).

Completion is subject to satisfaction of certain conditions precedent, including clearance from the Irish and German competition authorities.

Mike Maloney, Chief Executive of the Company, said:
"The actions announced today, in conjunction with the steadfast support of the banking syndicate and our new investor, Duke Street, will safeguard the future of the Company's operating companies, secure over 500 jobs and allow our operations, our suppliers and our customers to continue with business as normal.

"The transaction will bring to a conclusion a period of restructuring that included the sale of the Company's German, Polish and Dutch Mobile Top-Up businesses and the sale of its Dutch Electronic Funds Transfer business. Regrettably, it has not been possible to provide existing shareholders with an ongoing interest in the business.

"We believe that the Continuing Group has a bright future ahead and we look forward to guiding it into a period of growth as our markets start to recover. The support of Duke Street and the banks demonstrates their faith in the strength of the underlying business."

Background to the Restructuring

As noted in the AGM Statement released by the Company on 12 March 2009, given the challenging market conditions the Company appointed Rothschild to seek new finance for the business and instigated discussions with its finance providers to consider a range of financing options with a view to establishing a more appropriate long term capital structure.

In addition, the Company implemented a vigorous operational restructuring of the business, cutting costs and eliminating loss-making contracts.

In order to reduce debt and assist in refocusing the business on its core markets, the Company disposed of its Mobile Top-Up businesses in Germany, Poland and the Netherlands and its Electronic Funds Transfer business in the Netherlands.

The Company has followed a strategy aimed at maximising value for all stakeholders whilst at the same time ensuring certainty of outcome.

However, following a period of due diligence conducted by interested parties, the value of the Company was assessed to be significantly below its existing senior debt level, being €320m, and accordingly the Restructuring is unable to provide any value to existing shareholders.

Restructuring overview

The Restructuring is designed to put in place an appropriate long-term capital structure to enable the business to trade through the current adverse economic conditions and to have the capability to grow as its markets recover.

The Board believes that the proposed transaction represents the only realistic route to achieving a long-term sustainable capital structure for the business in current market conditions.

Duke Street and the Syndicate have notified the Company that the key terms of the transaction are:
• €45m cash investment by Duke Street (through the Purchasing Group) in the Continuing Group, being used for part repayment of bank debt being assumed by the Continuing Group and for working capital purposes of the Continuing Group
• The transfer of the shares in Cardpoint Limited and Alphyra Holdings Limited to the Puchasing Group and the novation of inter company debt owed by Cardpoint Limited and Alphyra Holdings Limited to the Company to the Purchasing Group
• The assumption of approximately €109m of bank debt and guarantees owed to the Syndicate by the Continuing Group, of which €27m will be prepaid by the Continuing Group out of the funds invested by Duke Street
• A member of the Purchasing Group will issue a deferred consideration note in favour of the Syndicate, payments under which are capped at €6m and are contingent upon performance over the three years following completion
• An additional RCF of €11m to be provided by the Syndicate to fund the Continuing Group's working capital requirements
• Immediately following the transaction, in each case through the Purchasing Group, Duke Street will hold a 69% interest in the Continuing Group, with the Syndicate holding a 16% interest and certain of the senior management holding a 15% interest

The proposals are conditional upon, amongst other things, no material adverse change occurring in the Continuing Group and first phase unconditional competition clearance by the Irish and German competition authorities. Applications for clearances are expected to be made promptly.

Future of Payzone plc

Following the completion of the Restructuring, the Company, which is a holding company, will have divested the all of its subsidiaries, with certain funds set aside to satisfy certain liabilities of the Company, and will cease to trade. It is expected that the listing of the Company's ordinary shares on AIM will be cancelled following the completion of the transaction.

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