New Look is set to fall into the clutches of its lenders as part of a painful restructuring aimed at putting the struggling fashion retailer on a securer financial footing.
The debt-for-equity swap will see the firm’s long-term borrowings reduced from £1.35 billion to £350 million, alongside a new capital raise of £150 million funded by issuing new money bonds.
As a result, New Look’s annual interest payments will reduce from £80 million to £40 million and its borrowings have been extended to 2024, giving it breathing space.
It will mean the company’s bondholders – thought to include Carlyle, GSO, CQS, M&G Investments, Avenue Capital and Alcentra – will hold 72% of the group’s equity.
Brait, New Look’s South African owner controlled by billionaire Christo Wiese, will see its holding significantly reduced.
Today’s agreement represents a critical step in our turnaround plans and lays the foundations to secure the future and long-term profitability of New LookNew Look chairman Alistair McGeorge
Chairman Alistair McGeorge said: “Today’s agreement represents a critical step in our turnaround plans and lays the foundations to secure the future and long-term profitability of New Look by materially deleveraging our balance sheet and providing us with the financial flexibility to better attack our future.
“Upon completion of the restructuring, our focus will be to enhance profitability by continuing to provide fantastic product for our customers, building brand equity and grasping new market opportunities.”
New Look pointed to “increased headwinds” in late November that pushed its UK like-for-like sales to decline 5.7% in December, resulting in comparable sales growth of just 0.9% in the third quarter as a whole.
The decline in total UK sales was further hit by the loss of stores under a closure programme.
As a result, earnings for the full year are now projected to be £84 million from the core UK business, while the non-core unit is set to book a £27 million loss, below initial forecasts.
Last year, New Look said it could close as many as 100 UK stores as part of a radical turnaround plan to cut costs and improve profitability.
This includes the 60 stores marked for closure under a company voluntary arrangement (CVA) approved in March.
Today marks an important milestone for the business, our colleagues, our suppliers and all our other stakeholdersNew Look chairman Alistair McGeorge
Mr McGeorge added: “Over the past year we have made significant progress with our wider turnaround plans to rebuild our position in the UK womenswear market and recover the broad appeal of our product whilst implementing significant cost savings and efficiencies.
“However, it has been clear for some time that the group’s existing level of indebtedness has been constraining our ability to accelerate our turnaround plans and would continue to limit our growth in the future.
“Therefore, today marks an important milestone for the business, our colleagues, our suppliers and all our other stakeholders.”