House Party Over? Soho House Straining Under £145 Million of Debt

The rise and rise of Soho House as the number one celebrity hangout could be about to change as the sprawling company is now bulking under hundreds of millions of pounds of debt.  Recently downgraded by two top credit agencies, the exclusive members only club needs a new strategy.

Soho House was founded by Nick Jones, entrepreneur husband of Desert Island Discs presenter Kirsty Young.  For the last two decades it has been seen as the definition of cool.  For a period of time it was seen as Britain’s version of NYC Studio 54, but things seem to be changing as the company has aggressively expanded.

The companies debt include £145 million of bonds, that are due for repayment in 2018.  Astonishingly, the interest rates associated to the bonds is set at 9.125% (when base rates are at 0.25%).  Thus meaning the firm is paying out £11.3 million a year just in loan interest payments.  Their ratio of debt to earnings before interest, tax, depreciation and amortisation has risen above 14 times, according to Standard & Poor’s.

The most recent accounts from parent company (SHG Acquisition Ltd), showed a loss of nearly £12.4 million before tax in 2014.

Membership at the exclusive club costs £830 a year for just one house and £1,500 to get into them all.

Their selection process means no bankers are allowed.  Jones famously purged close to 1,000 Manhattan members in 2010 as ‘they worked in finance’.

However, the bankers had the last laugh, as Soho house looked to replace the £145 million loans with a lower interest bond.  This was denied by Wall Street.  ‘It’s pretty funny,’ one investor said. ‘They say we are not cool enough to join their club but they’re perfectly willing to take our money when they need it.’

The real impact to such huge debt is to property market around it’s locations.

Soho House sits in trendy Shoreditch, a club has sprung up in Soho’s Dean Street, Electric House in Portobello road, High Road house in Chiswick and Little House in Mayfair.  If Soho House cannot afford their repayments and do not refinance their loans, some of their trendy clubs may close and local businesses will be impacted.

Soho House points to their membership levels (56,000 paying members and 33,000 on the waiting list). And more pointedly, their attrition levels are low.

DMZ envisions tough times ahead for a business built on exclusivity, but straining under heavy financial pressure to increase revenues. Some quick wins for Soho House could be to increase the cost of membership or reduce the waiting list, to try and ensure the future of one of London’s premier establishments.

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