The collapse of the company running some of Sydney's favourite bars and restaurants has caught up some of the city's high-profile names as investors.
Former Ten Network boss Grant Blackley, the head of investment bank JP Morgan, Rob Priestley, and former Wallaby Steve Lidbury are among investors linked to the Keystone hospitality group, which has collapsed owing nearly $80 million.
Keystone, which runs venues throughout Australia such as the celebrity chef Jamie Oliver-branded chain Jamie's Italian, as well as Sydney staples Kingsleys, the Sugarmill, Cargo Bar and Bungalow 8, was placed into receivership late on Monday after lenders KKR Asset Management and Olympic Capital Holdings Asia called time on the business, which expanded aggressively nationwide in 2014.
Morgan Kelly, of Ferrier Hodgson, said Keystone had been "placed into receivership by a syndicate of lenders due to an inability to reach agreement with the board on key aspects of the Keystone Group's financial structure". The businesses are continuing to trade and Mr Kelly will try to sell them, either as a whole or as part of a break-up.
Buoyed by the success of its Sydney operations, the group eyed national expansion in 2014, borrowing $80 million from KKR and Olympic in a "financial assistance" deal to fund the purchase of Pacific Restaurant Group, which owned Jamie's Italian restaurants in Sydney, Perth and Canberra.
But Keystone's accounts showed that by the middle of last year, the company was at odds with its lenders who enforced a standstill after its debts grew and demanded Keystone shareholders inject fresh capital. Despite record-low interest rates, Keystone was paying interest of up to 8 per cent on the loans. It's understood a debt repayment was due as soon as this week. Keystone's auditors PwC expressed "material uncertainty regarding continuation as a going concern" after the company reported a net loss of $20 million.
To bring the business back into line, nearly $10 million in annual savings was identified, along with a raft of asset sales including the Newtown Hotel, Cargo Bar and Bungalow 8, Kingsley's Woolloomooloo and a potential sale of Jamie's Italian businesses.
Among shareholders of Keystone Australia Holdings are Grant and Nicole Blackley, who hold 1.5 million shares. Mr Blackley heads Southern Cross Austereo. A company controlled by JP Morgan boss Rob Priestley holds a million shares. Former Wallaby Steve Lidbury holds 300,000 shares. Originally $41 million was raised from shareholders at $1 a share.
Industry observers say one of the main problems to beset the food and beverage business Keystone Group is the lack of gaming machines to bring in much-needed revenue.
Out of the 17 venues that it operates and owns, only the Sugarmill in Kings Cross has poker machines, and only 24 of them.
Pub and food agents said it was a model that was always having trouble because more money was going out than coming in. One said "you need at least 240 machines to keep a business this size operating".
The company was burning cash on the Jamie Oliver brands, rent and upkeep of the hotels and restaurants, the need to have well-known branded and hence highly paid chefs in the hotels – leading to high prices for patrons – and staff wages.
Sydney's lockout laws were also cited by agents as affecting city venues Bungalow 8 and Cargo Bar and at Kings Cross, including the Gazebo and Sugarmill.
Overall the assets, being leasehold and freehold, could reap about $100 million and could be sold in one line or separately.
Keystone also has a wide geographical spread, from the bars and restaurants in Perth to Adelaide and Brisbane, and across Sydney from Manly to Parramatta. Until April, Keystone also operated The Stables bar in the new members' stand at Randwick that is now under the management of the Australian Turf Club.
Keystone was established more than a decade ago by businessmen Fraser Short and John Duncan.
Ferrier Hodgson said it was interested in selling the businesses either as a whole or via a break-up.
Employees will continue to be employed on the same terms and conditions as before the appointment of the receivers.
