DURBAN – Brait’s share price shed 21.48 percent on Monday after the group announced that its struggling subsidiary, New Look, had agreed in principle to a restructuring deal with bondholders to deleverage and strengthen its balance sheet as the retailer continues to face difficult trading conditions.
New Look said it had reached an agreement “in principle” with certain of its key stakeholders and, if approved, would see its long-term debt fall to £350 million (R6.2 billion) from £1.35bn, while maturity for this debt would also be extended to 2024 from 2022.
Brait’s share price closed at R25.
The discussions were held between New Look, a group of holders of its £700m 6.5 percent senior secured notes (SSNs) due 2022 and €415m (R6.56bn) floating rate senior secured notes due 2022 and Brait, which collectively represent more than 50 percent of the outstanding SSNs.
Brait is the majority shareholder in New Look with a 81 percent stake.
“Following a difficult financial year 2018, significant progress has been made by New Look’s management team in financial year 2019 to deliver on its well-defined turnaround measures aimed at improving business performance and restoring growth and profitability,” Brait said in a statement.
However, the group added that New Look’s capital structure had represented a significant constraint to the business, in particular in light of UK retail market conditions that have been extremely challenging.
The group said the transaction would provide New Look with a more flexible capital structure, significantly lowering its overall annual cash interest payment from £80m to £40m with greater debt servicing flexibility.
New Look is targeting the completion of the transaction in the course of the first quarter of 2020.
In addition to the proposed transaction, New Look had also obtained a substantial number of the required consents to raise £80m of interim funding to support the business in the short term to allow the transaction to be implemented.
“The interim financing will be underwritten by the bondholder committee and Brait, but will also be open to participation by other eligible SSNs holders,” Brait said.
Ron Klipin, a senior analyst at Cratos Capital, said strong headwinds in the form of Brexit had resulted in a major loss of confidence and a downturn in the economy.
“This has resulted in a decline in spending in the retail sector in addition to poor management by previous executives. New Look lost its way in the past few years, having expanded its brick and mortar operations in the UK, Europe and China,” Klipin said.
He added that Brait’s merchandise proved to be inappropriate for its target market as sales declined and costs escalated with financial pressures becoming a major challenge.
"Brait, a major investor in New Look, is once again forced to write off an additional R2.20 a share in the value of its investment in the company.
"Reduction of debt to equity if successful could give the company some breathing space,” Klipin said.
In March last year, New Look also launched a company voluntary arrangement. Under the restructuring plan up to 60 of New Look’s 593 stores were expected to close, while the rent on nearly 400 other branches was cut.