The investment group said it is confident that a recapitalisation on top of steps taken by management will support the struggling fashion chain.
Brait says it plans to participate in a recapitalisation of New Look as the UK women’s fashion chain gets back on its feet following the Covid-19 lockdown. First, though, it plans to enter a company voluntary arrangement (CVA) so it can negotiate more favourable leases and lower rental costs for its stores.
Brait bought New Look in 2015 and reduced the carrying value of its investment to zero in 2017. A restructuring of its balance sheet last year slashed New Look’s debt by £1 billion – and reduced Brait’s equity stake to just under 19%. It holds 18.3% of its senior secured notes (SSNs). The latest transaction will shrink debt even more and extend New Look’s banking facilities to help it deliver on its three-year business plan.
Brait said it would provide its 18.3% pro-rata share of £40 million of new capital for New Look in a debt-for-equity swap, using the £4.1 million in interest coupons it received on its SSNs in January as well as a further £3.2 million (R70 million).
Although the retailer reported strong online channel as it focuses on its e-commerce channels, revenue still took a hit after it closed all its stores in the UK and Ireland from mid-March as the Covid-19 pandemic escalated. To help preserve cash, it suspended rental payments, reduced marketing costs and negotiated holidays, deferrals and discounts on payments to some strategic suppliers and counterparties. All big capital expenditure projects were delayed, recruitment was halted and executive pay was reduced.
Phased store reopening began on 1 June and by the beginning of this week, 459 of its 496 stores were trading again. Since reopening, stores sales had performed down 38% on a like-for-like basis predominantly due to the impact of Covid-19 on customer footfall.
Brait is confident that the actions taken by management, the recapitalised balance sheet and the resultant cost optimisation will position New Look strongly to capitalise on the progress it has made to date,” Brait said.
Meanwhile, Brait said New Look’s financial adviser had initiated a process to contact a number of strategic and financial investors to determine potential interest in an acquisition of the shares or the assets of New Look. The sale process would be independent of the other areas of the refinancing transaction.
The CVA is expected to be launched on 26 August. Brait’s shares rose 4.1% to R2.52 yesterday.
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