Bloomberg and Staff Reporter
BAIN Capital Partners, the US private equity firm that owns Edcon Holdings, is in talks with the retailer’s biggest funders to refinance debt, according to three people with knowledge of the matter.
Bain would not abandon its investment in Edcon and was negotiating with debt holders on how to restructure bonds, said the people, who are directly involved in the talks and asked not to be identified because the matter is confidential.
Bain bought out Edcon for R25 billion eight years ago.
Under current borrowing terms, Edcon needs to start repaying a total of about R4.7bn of euro, dollar and rand debt next year, with another R20bn due by 2019.
Edcon, the country’s biggest clothing retailer with more than 1 500 stores across fashion chains including Edgars and Jet, has posted 12 consecutive quarterly losses.
Refinancing the bonds might require debt holders to take some losses, the people said.
The process is complex and may take months, because Edcon has bonds in multiple jurisdictions and many debt holders, according to one of the people.
A London-based spokeswoman for Bain declined to comment.
Edcon was cut one notch to seven levels below investment grade on September 30 by Standard & Poor’s, which cited its “substantial debt” and declining sales on credit.
Moody’s downgraded Edcon’s global-scale corporate family rating on January 21 due to concerns about its ability to manage debt and sustain its capital structure.
In February, Edcon indicated that it had all but abandoned its attempt to find a second credit provider, and had begun testing its own inhouse credit solution in a bid to boost its flagging credit sales.
Edcon is looking to broaden its financial services and insurance offering. The retailer has been on a hunt for a second credit provider following the sale of its debtor’s book to Absa for R10bn in 2012.
The group’s credit sales have been on a downward spiral since the Absa sale, as consumers struggle with debt repayments, as well as tougher credit approval regulations.
Abil
Edcon had been in talks with African Bank Investments Limited (Abil) about it being the retailer’s second credit provider in order to mitigate tighter lending criteria from Absa.
However, the talks came to naught after Abil collapsed in August, forcing regulators to put up a massive rescue bid.
Since Absa took over the credit portfolio, stricter credit granting criteria had been applied. This has resulted in more of Edcon’s customers buying goods with cash.
Credit boosts customer loyalty and is more profitable than cash sales.
Edcon’s cash sales increased by 11.7 percent in the 13-week period to December 27, while credit sales fell by 12.1 percent.
Credit sales made up 41 percent of total sales in the third quarter, down from 46.9 percent in the 13-week period to December 28, 2013.
In a bad sign for Edcon, at the end of December the group’s liabilities exceeded its assets. This means that if all Edcon’s assets were sold and all its debt was paid, then its shareholders would be left with a deficit of R5bn.