SMCP Bondholders Seek to Organize Ahead of Potential Acceleration of Claims Due to Missed Coupon as 5-Day Grace Period Ends Today

SMCP bondholders are trying to form a group ahead of a potential plan to accelerate their claims after parent company European TopSoho missed a coupon payment, sources told Reorg. The bondholders are in discussions with several law firms, although no formal pitching process has yet taken place, sources added.

The 4% coupon payment on the retailer’s €250 million convertible bonds maturing in 2021 was due on Monday, June 22, and has a five-day grace period that ends today. Chinese textile company Shandong Ruyi Technology Group has a 53.7% stake in SMCP and bondholders could enforce on their collateral if its majority owner does not make the payment.

The bonds have a pledge over 31% of SMCP’s shares and are guaranteed by Forever Winner International Development, a Hong Kong entity that is wholly owned by Shandong Ruyi, according to the OM seen by Reorg. SMCP shares are quoted at €4.54 today, down from €5.20 on Monday and €9.60 six months ago.

The company is arranging a call with bondholders and requested a standstill last week. Shandong Ruyi has formally engaged TTB Partners and Zerobridge Partners as financial advisors, as reported.

Shandong Ruyi is separately facing a $10.425 million semiannual coupon payment next month under its $300 million 6.95% senior notes due July 5, 2022, as reported.

SMCP had €1.137 billion of net debt and was 4x levered through the holdco on a post-IFRS 16 basis as of the end of 2019. The retailer has a €200 million unsecured RCF due 2024 and a €265 million unsecured term loan maturing that same year. On a March 25 earnings call, management said the company has a net leverage covenant of 3x net debt to EBITDA (excluding IFRS 16) on its revolver. The group had 2.2x net leverage on a pre-IFRS 16 excluding the holdco convertible bond.

SMCP’s capital structure including European TopSoho bond is below:
 
The TopSoho bond is backed by 53.7% stake in equity of SMCP.

The retailer secured a €140 million guaranteed loan from the French state and obtained a suspension of its financial covenants for 2020 earlier this week. In return, it committed to not distribute any dividend for 2020 and 2021, which sources noted will further tighten controlling shareholder European TopSoho's liquidity.

The company had previously communicated that its profits and sales had been severely hit by the outbreak of the coronavirus. SMCP said in April that it fully drew its RCF in March and a liquidity position of more than €200 million at the end of the first quarter to face the crisis.

SMCP’s consolidated sales reached €228.7 million in the first quarter of 2020, falling 20.4% year over year on an organic basis. Reported sales dropped 16.7% year over year, reflecting the impact of the Covid-19 pandemic on the business. 

-- Jaishree Kalia