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Johannesburg - Edcon, SA’s biggest clothing retailer, asked holders of the company’s €425m (about R6bn) of 2019 bonds to take a loss on their investment as the company seeks to shore up its finances.
Debtholders were given the option of exchanging each €1 000 of notes for €400 of new payment-in-kind notes and a €50 payment, Edcon said in a statement on Tuesday.
A second option is to exchange €1 000 of notes for €150 of super-senior PIK (payment-in-kind) notes with the one-off €50 payment and €150 of new senior secured PIK securities as well as warrants for as much as 30% in equity.
The new notes will give Edcon the ability to pay interest with cash or debt, which means the loss-making retailer has an alternative to repaying in cash. The 2019 notes’ maturity will also be extended to 2022.
“This is a haircut for bondholders,” Kyle Rollinson, an analyst at Avior Capital Markets said by phone. “This is where a lot of the uncertainty lay, but is not necessarily sustainable. There will still be further uncertainty for the next 12 to 24 months as to what will ultimately happen.”
Edcon, owner of fashion chains including Edgars and Jet, was bought by US private equity firm Bain Capital Partners LLC for $2bn (about R24.3bn) in 2007 in a deal that burdened the company with debt.
Bain hired Goldman Sachs and Houlihan Lokey in May to advise on the borrowings. Edcon had to choose between spending limited cash resources on repaying the €28m coupon on the 2019 bonds, which was due on Tuesday, or restructuring its debt.
Price rising
If more than 90% of debt holders agree to the deal the principal amount of the notes will drop by almost 73% and the interest on the notes will drop to 5% a year from almost 14%, Edcon said in the statement. The offer will expire July 28 and the exchange should be completed by November, the retailer said.
Edcon’s €425m of bonds due June 2019 were quoted at 36.6 cents on the euro at 12:04 in Johannesburg on Tuesday, a 50% gain on Monday’s price, according to data compiled by Bloomberg. That pared the year’s decline to 5.8%.
Under borrowing terms agreed to before the restructuring, Edcon would have needed to start repaying about R4.7bn of debt denominated in euros, dollars and rand next year, with another R20bn due by 2019.
