New Look Launches Second Debt-For-Equity Swap

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Fashion retailer New Look to undertake second debt restructuring in as many years as it grapples with the effects of the coronavirus pandemic on its company already in difficulty.

The group will convert £ 440m of debt into equity and inject £ 40m of new cash. It will also launch another voluntary corporate agreement, to switch most of its stores to sales-based rents, a move that, if successful, would set an important precedent in the industry.

Nigel Oddy, chief executive of New Look, said the impact of Covid-19 combined with future debt obligations and “the likely permanent structural change.. From physical retail to online commerce” meant that the business needed additional capital and a smaller balance sheet.

“In addition, out of absolute necessity, we are preparing to launch a CVA that would reset our rental cost base to market rent through a revenue-based model that faithfully reflects the future performance of the business and the market. retail market at large, ”he added.

New Look stopped paying rent in March and had pressured landlords to switch to revenue-related charges.

The group’s main bank lenders have agreed to extend existing credit facilities worth £ 165million until at least June 2023, although costs will rise and there will be a new set of covenants .

Holders of the £ 440million senior secured bonds, including Alcentra, Avenue Capital and CQS, will swap their debt for a 20% non-voting stake in the group and a shareholder loan of £ 40million. pound sterling. They will also be offered junior debt instruments in a new holding company, as well as four-fifths of the capital of this entity.

Major lenders have accepted the broad outlines of the proposals, but for the debt-for-equity swap to be effective, three-quarters of noteholders will need to vote in favor. The same proportion of owners will have to subscribe to the CVA, to which the recapitalization is conditional.

The CVA will launch later in August, and failure to gain sufficient support could result in New Look being administered.

Perella Weinberg, the group’s advisor, will separately lead a sales process to determine the value of the retailer, with any credible offer potentially offering an alternative to the recapitalization. Need more debt knowledge, discover here

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New Look has already gone through an extensive restructuring process, using a CVA in 2018 to close dozens of stores, and a debt-for-stock swap last year that reduced the face value of senior bonds by three-quarters and all but eliminated. the juniors. debt holders. He left Brait, the investment company controlled by South African billionaire Christo Wiese, with less than a fifth of the capital.

Following its first CVA, the retailer appointed powerful new directors, including retail convenience store Alistair McGeorge and former Marks and Spencer executive Mr. Oddy changed their operating model to be focus on mid-range womenswear, and withdrawn from abroad markets like China.

Yet the coronavirus struck at a time when its recovery was still fragile. All of its 496 stores closed when the UK government ordered a lockdown in March, and although 459 have now reopened, sales have fallen 38% so far. Before the coronavirus, New Look made around 20% of online sales.

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