LPC-Holland & Barrett, the latest retailer to limp into the loan market

LONDON, Aug 10 (Reuters) – British health food and supplement chain Holland & Barrett has been forced to make significant changes to a £900million buyout loan to attract enough support ahead of the shutdown , while retail credit struggles to gain favor with investors.

Russian billionaire Mikhail Fridman’s L1 Retail announced in late June that it would buy Holland & Barrett from The Nature’s Bounty Co and Carlyle Group for £1.77bn, triggering a new leveraged loan that should appeal to investors. investors in need of transactions.

However, the arranging banks had to reduce a sterling portion of the loan, increase a euro portion and offer higher prices and more investor-friendly terms for the documents in order to complete the deal, under pressure for the pull off their books before the summer downturn.

“The flex was higher than people expected,” one investor said.

It comes after French jewelery retailer Thom Europe was forced to scrap plans to pay its private shareholders a €140m dividend at the end of July, after a wider loan refinance ran into trouble. investor opposition.

Like Holland & Barrett, Thom Europe was also a top loan originator as it refinanced itself from the bond market, but that was not enough to tempt some funds, which either rejected the deal outright or demanded company to make a number of concessions before leaving. including a price increase.

PURCHASING FATIGUE

A number of investors are reluctant to lend to the retail sector, which is at the mercy of public trust and the associated discretionary spending. It also continues to face fierce competition from internet retailers.

Despite much of the market above par this year in the secondary loan market in Europe amid an imbalance between supply and demand, average bids on senior retail fixed income loans leverage in Western Europe were 92.9% of face value on Aug. 10, according to Thomson Reuters LPC data.

Bids fell from 81.9% of face value at the end of Q4 2016 to 85.1% at the end of 1Q17 and 87.4% at the end of 2Q17, primarily driven by technical factors driving the market rather than improvements in the quality of underlying credit fundamentals.

Many loan investors are still scarred after losing money on struggling French clothing retailer Vivarte, which has seen several debt restructurings since 2013.

Additionally, German outdoor brand Jack Wolfskin recently completed a financial restructuring in July, which saw lenders take control of the business from private equity firm Blackstone in a debt-for-equity swap. actions.

Under the terms of this restructuring, Jack Wolfskin wrote off €255 million of its €365 million term loan debt into a reinstated tranche of €110 million which has equity stapled and its maturity extended. until 2022 in exchange for handing over the keys to the lenders.

Other retailers also struggled. New Look bonds continued to fall into more troubled territory after plunging following poor results released on August 8.

The British retailer’s £177m 8% 2023 unsecured senior note traded at an offer price of 39, while its £700m 6.50% senior secured note 2022 was fell to 63 this week, according to data from Tradeweb.

Many investors are agnostic between loan and bond asset classes and many have been spooked by New Look, lenders said.

“Holland & Barrett has retail and wholesale. It’s a niche retailer with a terrific track record and is in a growing segment, health and nutrition, so it’s different from New Look and other retailers. Despite this, investors are cautious about retail in general,” said a senior banker.

PAID

Some investors have not bought into Holland & Barrett’s business case, thinking much of what it retails could be located on a few supermarket shelves. Other investors didn’t care about the venture, but wanted to be paid in sterling and the fact that it was an aggressive structure for a new sponsor, sources said.

Holland & Barrett’s leveraged debt financing has been completed with a seven-year senior term loan of £450m and an equivalent seven-year senior term loan of £375m denominated in euros. The pound was launched at £550m, while the euro part was launched at the equivalent of £275m.

The British Pound is paying 525bps above Libor, up from initial guidance of 450bps to 475bps and the Euro side is paying 425bps above Euribor, up from the initial guidance of 350 basis points to 375 basis points. Both have a floor of 0%.

Dual currency loans allocated to 98 OIDs, up from the original OID guidance of 99.5. Citigroup, HSBC and UBS led the debt financing, alongside Barclays and Societe Generale.

101’s soft-call was increased to 12 months from six months and further adjustments to the documentation took place around margin ratchet holiday improvements, dividends and additional leverage.

A £75m six-year bi-currency revolving credit facility remains unchanged at 400bps above Euribor/Libor, with a floor of 0%.

“Holland & Barrett has almost crossed the line,” said a second investor.

Despite the general caution in the sector, new retail loans should continue to be concluded, but with concessions.

“Investors aren’t shut out of retail and neither are banks, we just get to choose what we do and how we do it,” the senior banker said. (Editing by Christopher Mangham)

Priscilla C. Carnegie