Vultures set to swoop on debt-stricken New Look
Fashion chain is vulnerable as bonds hit rock bottom
PREDATORS are circling New Look after the fashion chain’s financial woes left it a takeover target.
Several potential buyers, who asked to remain anonymous, told The Mail on Sunday that they were mulling an attempt to seize control of the chain on the cheap.
New Look is owned by South African listed Brait, part of the empire of troubled tycoon Christo Wiese.
The British fashion retailer is vulnerable because its dire finances have caused a collapse in the value of its bonds. In simple terms, these are IOUs that Brait used to buy the chain in 2015. The IOUs can be traded on the stock market, where their value varies according to how likely investors think it is that New Look can repay its debt.
Because of the retailer’s parlous state, the bonds are changing hands at rock bottom prices. This has opened up an opportunity to acquire the business ‘by stealth’, one would-be buyer said.
Sources say those hoping to exploit New Look’s difficulties include hedge funds and vulture funds. US operator Apollo is thought to be among them.
‘There’s a good business here but with far too much debt and too many shops,’ said a senior retail source. ‘The value of the company’s debt has fallen significantly in recent weeks. People in the buyout market are looking at it.’
New Look has two main categories of debt. One tranche of bonds, used to raise £175 million in 2015, were trading at 15p in the pound last week. A separate slice – the bulk of its £1.2billion debt – also fell to a low of 35p in the pound, compared with 93p a year ago.
If a predator manages to buy up the bulk of New Look’s IOUs, then, as a major creditor, it would be in a powerful position to seize its assets if the retailer failed. And if New Look recovers, the value of its bonds would rise.
Separately, there has been speculation that New Look’s management is planning to shutter 60 stores – 10 per cent of the UK estate – through a par- tial insolvency. But another retail source said this would not go far enough, adding: ‘You’d want to close 30 per cent of the chain, otherwise you’ll be back in this position again in two years’ time if the retail market fails to improve.’
Brait bought New Look for £1.9billion in 2015. The group recently parachuted in previous chairman Alistair McGeorge, who renegotiated the company’s borrowings in 2013. But his plans could be frustrated if predators swoop before his revival takes effect.
New Look is thought to have launched a review of its store portfolio and be considering an approach to landlords to negotiate reduced rent payments.
One landlord said: ‘The issue for New Look is not shops or rent, it’s debt. The way to deal with that is to speak to bondholders, who lent the money in the first place, not to unload the pain on to the landlords. Simply put, it’s not our fault it got itself into this mess.’
New Look declined to comment.