August 23, 2007

By Lisa Gewirtz-Ward
FYI-The Deal

TSG Consumer Partners said Thursday, Aug. 23, it bought casual dining chain Yard House USA Inc. for a price sources said was less than $200 million.

The transaction appears to be one of the few recent deals whose debt syndication may be oversubscribed. That sharply contrasts with much of the rest of the private equity market, where many banks are scurrying to change the terms of deals or must choose between holding the debt on their own balance sheets or selling it at a discount.

Wells Fargo Bank NA is underwriting the Yard House deal, syndicating $110 million in debt, a source said. Commitments are due Friday, and so far the issuance has been oversubscribed, the source said.

"The sponsor did not push for the last dollar of leverage," a source said, adding that San Francisco private equity firm TSG is putting more than 40% equity into the deal.

One-third of a deal's capital structure is typically funded by equity, although over the past year as the leveraged buyout craze intensified, some sponsors put as little as 10% equity into deals.

There was also a traditional bank covenant on the Wells Fargo deal, sources said, in contrast to many of the so-called covenant-light deals that hit the market over the past few months.

But neither healthy equity nor traditional covenants guaranteed the deal would be completed. In fact, Wells Fargo was supposed to underwrite the deal with RBC Capital Markets. But RBC dropped out once the markets began gyrating because it didn't want to get stuck with holding the debt on its balance sheet, a source said.

Wells Fargo was able to sell the debt to unidentified commercial banks or financial companies with extensive experience in the restaurant industry and didn't have to rely on complex credit instruments whose cost has skyrocketed in recent weeks.

Yard House USA is a casual restaurant chain based in Irvine, Calif., that markets itself with the claim it has the world's largest selection of draft beer.

The company operates 16 restaurants and plans to open another three within six months. It has about $20 million in Ebitda, a source said.

Yard House's had about $115 million in revenue in 2006, company founder Steele Platt told LBO Wire last year.

Platt has been publicly talking about selling the chain for more than a year. He first mentioned that he was considering a sale in April 2006. At the time, he said he wanted to sell for between 10 and 12 times Ebitda, but he ended up selling for between 8 and 9 times Ebitda.

The company was not sold in a traditional auction, sources said.

Piper Jaffray & Co. advised Yard House as it negotiated with TSG Consumer Partners, a private equity firm that invests in consumer product companies, often businesses with well-known brand names like Terra chips, Glacéau vitamin water and Famous Amos cookies.