Article 6.6 New Look launches £800m bond to grasp debt nettle
By Duncan Robinson and Anne-Sylvaine Chassany
Financial Times April 26, 2013
New Look has launched an £800m bond offering to repay part of a loan that rolls up interest as extra debt and was blamed for scuppering the fashion retailer's aborted initial public offering in 2010.
The cash raised will be used to pay off half of the £746m in payment-in-kind notes that accounted for the bulk of the private equity-owned retailer’s £1.1bn net debt. The remaining PIK notes were due to mature in 2015, but will now not do so until 2018, giving vital breathing space to new chief executive Anders Kristiansen, who took over the business late last year.
New Look, owned by private equity groups Apax and Permira, will pay a coupon of 12% on the new payment-in-kind notes, compared to 9% plus Libor the retailer had paid previously.
‘People were expecting the keys to be handed over to the payment-in-kind holders in 2015,’ said one person familiar with the situation. The £425m left over from the bond will - along with some of the group’s cash - refinance the retailer’s remaining senior debt.
The move comes three years after New Look scrapped a planned £650m IPO as potential investors raised questions about the low-cost fashion retailer’s debt. Annual interest costs on the debt, which came to slightly more than £100m in 2012, have since hindered the group’s profitability.
New Look, founded in 1969, has more than 1,000 stores globally. In 2012, it had revenues of £1.5bn and adjusted earnings before interest, tax, depreciation and amortisation of £198m. Late last year, New Look was forced to beat off suggestions that it was close to going into administration and wrote to suppliers to reassure them of its financial strength.
FT
Source: Robinson, D. and Chassany, A.-S. (2013) New Look launches £800m bond to grasp debt nettle, Financial Times, 26 April.
Hybrid securities
Convertible bonds
Convertible bonds (or convertible loan stocks, or converts, or CBs), like other hybrids, combine a debt security element and an equity element. Convertible bonds carry a rate of interest in the same way as ordinary bonds, but they also give the holder the right to exchange the bonds at some stage in the future into ordinary shares according to some prearranged formula.[XVI] The owner of these bonds is not obliged to exercise this right of conversion and so the bonds may continue until redemption as an interest-bearing instrument.
They are not particularly popular in the UK, but in the US and some other parts of the world they form a significant percentage of securities, and issuance has risen as investors seek the better returns that may come from the link to equity - see Article 6.7.