A problem like Paramount

There’s still no word on what’s happening at Paramount Restaurants. The operator of Chez Gerard, Brasserie Gerard and a clutch of other restaurant concepts is reportedly looking at a second financial restructuring inside a year.

The banks that control the business, which is led day-to-day by Mark Phillips, have asked professional services firm Grant Thornton to undertake a review, given its current financial structure is not sustainable.

We all thought this work was concluded last year, when Silverfleet, the private equity group behind Paramount, walked away from the business, its stake deemed worthless, leaving its syndicate of four banks in charge - but apparently not. It’s not clear whether the first cut of debt was not deep enough, or, as people close to the situation intimate, what happened last summer was part one of a two-part process.

The words “pre-pack” have been mentioned has a possible outcome although people close to the group are very keen to play down such “misguided” talk. But then so was Regent Inns. So was Orchid. These situations are fluid and things change quickly.

If things still are the same on a debt basis, it means the business has debt of about £120m, £60m of which is active, with the rest rolled up until some sort of exit event.

The big question is, is trying to fix this the right move?

The banks and management team need to decide whether Paramount is a platform or a brick in someone else’s wall. It looks and feels to me like it could well be the latter.

Are these brands the right brands, with long-term futures? If they are, then the business needs re-investment - have investors got the appetite?

If investors decide to cut and run rather than invest there is one obvious consolidation play in Tragus, the casual dining business backed by Blackstone. If you put the brands of the two companies alongside each other, a deal makes perfect sense. One runs Bella Italia, the other has Café Uno. One has Café Rouge, the other Brasserie Gerard.

More to the point, one currently has an unsustainable debt position, the other is desperate to scale up. They should probably already be round the table.

My understanding is that Tragus is not the only game in town. Others have spotted an opportunity and are very keen to talk to Grant Thornton and the banks that effectively control the group - some individuals with very impressive track records of value creation is casual dining.

The only thing that speaks against a throwing in of the towel at Paramount is the appointment of David Michels, the former chief executive of Hilton, as chairman. It would be odd to appoint such a heavyweight chairman, only to run for the hills. Maybe the banks just want someone of his standing to take a fresh look at the business and to tell them what to do - when banks have so much to do and so little time, reputations count, and they don’ come much bigger than his.

Understandably Phillips, chief executive, declined to comment on the current situation. What he was prepared to say was this: “Paramount is a business with huge potential to be unlocked. It has some terrific assets and some terrific brands. We have been rebuilding the business over the past 18 months and now think we have a high-class management team in place to realise that potential.”