The Daily Telegraph - Business
New Look pleads with landlords to back latest rescue deal to save it from administration
Boohoo ready to pounce on retailer if it fails to win approval for CVA plan, reports
It does not bode well for New Look that online peer Boohoo is ready to pounce on the ailing retailer ahead of a crunch vote with landlords tomorrow. The move itself is not surprising. Boohoo has been on an acquisition spree of distressed brands over the past year. But it implies that New Look will go bust. So far, Boohoo has only bought the name and websites of Karen Millen, Coast, Oasis and Warehouse after they collapsed, and not the stores.
New Look has 496 branches and more than 11,000 staff. Its future is contingent on landlords approving a controversial company voluntary arrangement (CVA) – its second in two years – to allow it to pay cheaper or zero rent on its shops.
Last week, financial advisers at Perella Weinberg failed to find a buyer for the whole business as part of a separate process to help steady the ship, dashing the firm’s hopes that a white knight could rescue it. Nigel Boobier, a partner at law firm Osborne Clarke, says: “The impact of not approving the CVA is likely to result in administration and a sale of the trading name without the physical sites.”
Around 300 landlords will now decide its fate. Under the proposals, property owners would have to accept no rent for three years on 68 shops and a switch to rent based on revenues for 400-odd branches. The CVA requires the approval of three quarters of its creditors, including lenders and suppliers, but votes cast by landlords weigh the most.
Some property owners have been resisting the plan fearing that it will set a precedent in the industry that will lead to more firms using a CVA to switch to turnover-based rents. The majority of bondholders, who only last year agreed to cut the chain’s debt by £1bn, mostly racked up under private equity owners over the years, are backing the proposals.
An executive close to the process said: “Nobody wants to go back and do a CVA again. I know the debate is about turnover rents, to me that’s not the debate … The debate is the financial viability of many businesses and the fact that most of these properties are now not worth anything what they were worth. There is a lot of pain being taken by a lot of people.”
Its main banks have agreed to extend two loans worth £170m to 2023 and 2024 respectively, although New Look will have to pay more for it, while bondholders Alcentra, Avenue Capital and CQS will write off £440m of debt if the CVA goes through. Some of its lenders will also inject a further £40m to turn its fortunes around.
Richard Hyman, an independent retail analyst, says: “Just lowering the costs is not addressing the core issue. What was a really good business some years ago, now it’s just not good enough. Primark does more or less the same thing, but much better. It has a cheaper, more focused and more relevant offer. In order for New Look to do OK, Primark has to falter.” He adds: “Each time creditors take a massive hit and nothing is done in the time bought. If you are not able to drive revenue more strongly, [restructurings] will keep coming back until there is nothing left.”
A source close to the company insisted there is “a viable business if this [CVA] goes through”. There were green shoots of recovery at the chain before coronavirus.
In a letter to landlords, seen by The Daily Telegraph, chief executive Nigel Oddy, who previously ran House of Fraser, pleaded with landlords.
He wrote: “Our CVA has been launched out of absolute necessity. It is not a situation we would like to be in, but we have sought to ensure that our proposal offers flexibility and fairness.”
Since the CVA was launched, New
Look has offered sweeteners to landlords to get the deal over the line, including enhanced break clauses and an agreement to pay preset minimum rents for three years.
New Look went through an extensive restructuring process over the past two years, which led to store closures and 980 job losses. A debtfor-equity swap wiped out junior debt holders, while Brait, the investment firm controlled by South African billionaire Christo Wiese, was left holding less than a fifth of the equity.
Five years ago, Brait paid £780m for a 90pc stake in the fashion retailer and it subsequently wrote off the entire value of the investment in 2017.
One rival executive source said that landlords’ resistance to a blanket switch to turnover rents by New Look was a non-argument because “a lot of people already use them”. Property owners have benefited from fixed rent payments and long contracts for too long, the source says. “They can take their stores back if they find better tenants … I would be very doubtful.”
‘Not approving the CVA is likely to result in a sale of the trading name, but without the shops’