Ed­con rat­ing slashed af­ter debt de­fault

CityPress - - Business - – Bloomberg

Ed­con had its credit rat­ing cut by Stan­dard & Poor’s and Moody’s In­vestors Ser­vice af­ter the coun­try’s big­gest cloth­ing re­tailer missed a coupon pay­ment this past week and asked in­vestors to take losses on debt.

The as­sess­ment was low­ered to CC, S&P’s fourth-low­est spec­u­la­tive grade, which it de­fines as ex­pect­ing “de­fault to be a vir­tual cer­tainty”, from CCC+, the rat­ings com­pany said on Thurs­day.

Moody’s cut the level on se­nior notes to Ca from Caa3 in a sep­a­rate state­ment. The out­look was neg­a­tive, in­di­cat­ing more re­duc­tions might hap­pen, said both S&P and Moody’s.

Ed­con on Tues­day asked in­vestors hold­ing $472 mil­lion (R5.8 bil­lion) worth of bonds due in 2019 to swap the debt and ac­cept losses to help it shore up its fi­nances.

Moody’s said the of­fer “will con­sti­tute a de­fault un­der an in­stru­ment within the com­pany’s broader cap­i­tal struc­ture”. The ex­change “also cre­ates un­cer­tainty around the broader im­pli­ca­tions on Ed­con and its over­all credit pro­file”.

Bain Cap­i­tal bought Ed­con in a pri­vate eq­uity deal in 2007 for R25 bil­lion, us­ing debt to fund the pur­chase.

Bain has been un­able to exit its in­vest­ment, with Ed­con hav­ing slipped into losses. Ed­con faces at least another R5 bil­lion in debt obli­ga­tions within a year and more than R26 bil­lion in the next three years, ac­cord­ing to the com­pany’s an­nual re­port, which was re­leased this week.

Fur­ther restruc­tur­ing

Deb­bie Mil­lar, a spokesper­son for Ed­con, said: “The rat­ing down­grade and lan­guage is stan­dard process re­quired by the agen­cies be­cause the ex­change of­fer is com­pen­sat­ing bond hold­ers be­low the orig­i­nal prin­ci­pal amount and not be­cause we are un­able to ful­fil any fi­nan­cial obli­ga­tions.

“Bond­hold­ers are not forced to do any­thing, although the of­fer is at a sig­nif­i­cant pre­mium to where the bonds were trad­ing be­fore it launched.”

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