Edcon Consolidated Stores Ltd
Edcon Asks Opco Creditors for New Money in Restructuring Deal; South African Retail Peers Feel Macroeconomic Headwinds in Christmas Trading
Wed 01/23/2019 10:36 AM
Edcon’s Opco creditors have been asked to provide new money as part of the South African retailer’s ongoing debt restructuring, sources familiar with the situation told Reorg. The recapitalization will see Edcon raise approximately 1.9 billion South African rand ($137 million) of new money, sources said, although CEO Grant Pattison said in a December radio interview that the restructuring would see ZAR 3 billion of new capital injected into the business.
In an interview with Johannesburg-based Radio 702, Edcon CEO Pattison said the deal will consist of two prongs: a simplification of the company’s structure and the recapitalization of the business.
“A huge vast structure was created at the last restructuring with a holdco and an opco structure. All of that will be undone and we’ll end up in a simple legal structure where we just have shareholders and no debt,” he said. “Then there’s the recapitalization side which is where we will raise collectively about ZAR 3 billion, which will give the company a runway which will last at least two years and hopefully longer, which will give management an opportunity to spend less time doing recapitalizations and restructurings and spend more time fixing the business which is in urgent need of fixing.
“The restructuring is vast and complex and involves probably over 250 companies ... It has stakeholders putting money in, lenders putting more money in, and it has new shareholders putting more money in,” Pattison said.
Asked whether new shareholders will be domestic or international, Pattison responded that the deal includes both domestic and international, current and new shareholders, and other stakeholders. The next few months will see a completion of due diligence and regulatory approval, Pattison added, at which time the company will announce the more intimate details of the recapitalization and restructuring.
The deal may also include new money coming in from the state-owned enterprise Public Investment Corp., as according to previous reports.
Edcon declined to comment but reiterated its statement from Dec. 21 that the company’s board “has approved the structure of the proposed recapitalization plan, and in response lenders have extended waivers to allow time for implementation.”
The opco creditors include South African lenders Absa, Rand Merchant Bank and Standard Bank as well as London-based banks and funds including British bank Standard Chartered. Other opco creditors include AlbaCore Capital, Goldman Sachs and Apollo Global Management, as reported. Goldman, Standard Chartered and ABSA gave no comment when contacted, with the remaining opco creditors not responding by the time of writing.
It is unclear when the deal will be announced although sources say there is pressure to wrap it up quickly. Estimates range from the the next few days to early February. Edcon has a super senior credit and a super senior liquidity facility due to mature on Jan. 31, which can be automatically extended to March 31, subject to certain conditions including the group securing additional working capital funding, as reported. If additional time is required to close the transaction, the maturity can be easily extended, two sources close said.
Edcon does not provide a post-Christmas trading update, a spokesperson said. The firm’s performance over the Christmas period will be included in its next set of results. Reports coming out of some of South Africa’s other non-food retailers show a difficult trading environment. Budget clothes retailer Mr Price said spending in South Africa is down due to increased value-added tax, unemployment of 27% and consumer price index inflation of 4.5% combined with higher fuel prices and lower GDP growth.
Mr Price reported a 0.8% year-over-year revenue reduction on a like-for-like basis for the nine months ending Dec. 29. The performance was below expectations, Mr Price said on Jan. 17.
Consumer goods and general merchandise retailer Massmart highlighted “softer than expected sales, particularly over the crucial November and December 2018 period.” Massmart expects its headline earnings per share for the year ending Dec. 30 to drop by up to 44%, according to a Jan. 22 notice.
Edcon is South Africa’s largest non-food retailer, employing about 27,000 permanent employees or about 40,000 including seasonal or casual staff.
The holding company is advised by law firm Weil while the operating group is working with Kirkland & Ellis, local counsel ENS and PJT Partners a financial advisor. Holdco noteholders and shareholders are advised by Lazard and Slaughter & May. Houlihan Lokey and law firms Clifford Chance and Werksmans work with the opco creditors. Alvarez & Marsal has been appointed for cash management, as reported.
Edcon’s capital structure is below:
In an interview with Johannesburg-based Radio 702, Edcon CEO Pattison said the deal will consist of two prongs: a simplification of the company’s structure and the recapitalization of the business.
“A huge vast structure was created at the last restructuring with a holdco and an opco structure. All of that will be undone and we’ll end up in a simple legal structure where we just have shareholders and no debt,” he said. “Then there’s the recapitalization side which is where we will raise collectively about ZAR 3 billion, which will give the company a runway which will last at least two years and hopefully longer, which will give management an opportunity to spend less time doing recapitalizations and restructurings and spend more time fixing the business which is in urgent need of fixing.
“The restructuring is vast and complex and involves probably over 250 companies ... It has stakeholders putting money in, lenders putting more money in, and it has new shareholders putting more money in,” Pattison said.
Asked whether new shareholders will be domestic or international, Pattison responded that the deal includes both domestic and international, current and new shareholders, and other stakeholders. The next few months will see a completion of due diligence and regulatory approval, Pattison added, at which time the company will announce the more intimate details of the recapitalization and restructuring.
The deal may also include new money coming in from the state-owned enterprise Public Investment Corp., as according to previous reports.
Edcon declined to comment but reiterated its statement from Dec. 21 that the company’s board “has approved the structure of the proposed recapitalization plan, and in response lenders have extended waivers to allow time for implementation.”
The opco creditors include South African lenders Absa, Rand Merchant Bank and Standard Bank as well as London-based banks and funds including British bank Standard Chartered. Other opco creditors include AlbaCore Capital, Goldman Sachs and Apollo Global Management, as reported. Goldman, Standard Chartered and ABSA gave no comment when contacted, with the remaining opco creditors not responding by the time of writing.
It is unclear when the deal will be announced although sources say there is pressure to wrap it up quickly. Estimates range from the the next few days to early February. Edcon has a super senior credit and a super senior liquidity facility due to mature on Jan. 31, which can be automatically extended to March 31, subject to certain conditions including the group securing additional working capital funding, as reported. If additional time is required to close the transaction, the maturity can be easily extended, two sources close said.
Edcon does not provide a post-Christmas trading update, a spokesperson said. The firm’s performance over the Christmas period will be included in its next set of results. Reports coming out of some of South Africa’s other non-food retailers show a difficult trading environment. Budget clothes retailer Mr Price said spending in South Africa is down due to increased value-added tax, unemployment of 27% and consumer price index inflation of 4.5% combined with higher fuel prices and lower GDP growth.
Mr Price reported a 0.8% year-over-year revenue reduction on a like-for-like basis for the nine months ending Dec. 29. The performance was below expectations, Mr Price said on Jan. 17.
Consumer goods and general merchandise retailer Massmart highlighted “softer than expected sales, particularly over the crucial November and December 2018 period.” Massmart expects its headline earnings per share for the year ending Dec. 30 to drop by up to 44%, according to a Jan. 22 notice.
Edcon is South Africa’s largest non-food retailer, employing about 27,000 permanent employees or about 40,000 including seasonal or casual staff.
The holding company is advised by law firm Weil while the operating group is working with Kirkland & Ellis, local counsel ENS and PJT Partners a financial advisor. Holdco noteholders and shareholders are advised by Lazard and Slaughter & May. Houlihan Lokey and law firms Clifford Chance and Werksmans work with the opco creditors. Alvarez & Marsal has been appointed for cash management, as reported.
Edcon’s capital structure is below:
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