Fri 02/12/2021 12:43 PM
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Owners of Chinese-owned French apparel company SMCP and its ad hoc bondholder group are embroiled in a conflict as to whether an event of default has taken place under the company’s €250 million convertible bonds due 2021, sources told Reorg.

The group of bondholders - who are working with legal advisors Sullivan & Cromwell - says that there has been a cross-default under the bonds due to the guarantor, Shandong Ruyi-owned Hong Kong entity Forever Winner International Development, failing to pay debt owed over a certain period time. As a result, the bondholders believe they have the right to accelerate the bonds and enforce their security and have taken some steps to commence this process.

The holdco maintains that some of the defaults have been cured, while the ad hoc group believes no evidence of this has been demonstrated. The bondholders are not currently working with a financial advisor.

The retailer noted a disclosure by GLAS that there had been a default under the bonds on Jan. 7, which led to the transfer of 34.8 million voting rights corresponding to 29% of company voting rights attached to the shares securing the bonds.

However, issuer European TopSoho said it has been notified by Forever Winner International Development that it had reached commercial settlement agreements in respect of its disputes with Hang Seng Bank Ltd. and Industrial Bank Co. Ltd. ahead of the notice date. Therefore, the holdco is of the view that there has not been an event of default. The notes are secured by a pledge over 31% of SMCP’s shares while Shandong Ruyi Technology Group has a 53.7% stake in SMCP.

There has been little engagement from the company’s major shareholders, China’s Shandong Ruyi and Yinchuan Weixin Industry Funds, with the bondholder group about what it intends to do, sources said.

The €250 million convertible bond matures in September 2021, so even if the event of default is remedied or cured, then there would still be questions over how the bond will be repaid or refinanced. SMCP’s full-year 2020 sales dropped 23.9% year over year on an organic basis to €873 million.

The holdco, meanwhile, is working with Perella Weinberg as its financial advisor and Linklaters as its legal advisor to assist it in dealings with the holders of the bonds, including the ad hoc group.

In June, bondholders attempted to organize ahead of a potential plan to accelerate their claims after European TopSoho missed a coupon payment. In August, European TopSoho told its convertible bondholders that it was in the process of paying the €2.5 million interest coupon. The default was caused by a missed coupon payment, due June 22, which had a five-day grace period under the terms of the notes indenture. The grace period commences when the trustee provides written notice to the issuer of the default caused by the missed interest payment.

The company’s capital structure is below:
 
SMCP SA
 
06/30/2020
 
EBITDA Multiple
(EUR in Millions)
Amount
Maturity
Rate
Book
 
Bank Overdraft Facility
54.7
 
 
 
€265M Unsecured Term Loan due 2024 1
265.0
May-2024
EURIBOR + 2.150%
 
€200M Unsecured Revolving Credit Facility due 2024
200.0
May-2024
EURIBOR + 1.750%
 
€40M Bridge Loan 2
40.0
 
EURIBOR + 2.000%
 
€200M NEU Commercial Paper Program
10.7
 
 
 
€140M State-Guaranteed PGE Loan 3
140.0
Jun-23-2020
 
 
Other Bank Debt
10.6
 
 
 
Total Unsecured Bank Debt
721.0
 
3.6x
IFRS 16 Lease Liabilities
492.5
 
 
 
Total Lease Liabilities
492.5
 
6.1x
€250M Secured Convertible Bond due 2021 4
250.0
Sep-21-2021
4.000%
 
Total HoldCo Secured Bond Debt
250.0
 
7.3x
Total Debt
1,463.5
 
7.3x
Less: Cash and Equivalents
(273.5)
 
Net Debt
1,190.0
 
5.9x
Operating Metrics
LTM Reported EBITDA
200.5
 
 
Liquidity
RCF Commitments
200.0
 
Less: Drawn
(200.0)
 
Other Liquidity
4.2
 
Plus: Cash and Equivalents
273.5
 
Total Liquidity
277.7
 
Credit Metrics
Gross Leverage
7.3x
 
Net Leverage
5.9x
 

Notes:
Capital structure is post IFRS-16. LTM EBITDA is the company's adjusted figure, as reported. HoldCo convertible bond excluded from SMCP SA reported financial debt. Other liquidity includes undrawn amounts under the bank overdraft facility. Cash and cash equivalents includes amounts utilized under the overdraft facility, which are included in total debt.
1. Interest rate not disclosed. Repayable in €55M installments in May 2021, May 2022, May 2023, with remaining payable on May, 9 2024.
2. Matures in Sept. 2020, with optional 6 month extension. Assumed unsecured.
3. Maturity one year from loan initiation, optional extension for up to 5 additional years. SMCP plans to use the PGE's 5lyear extension option so does not classify as long-term debt.
4. Secured convertible bond, issued by European TopSoho Sarl. Convertible at €22.299. Secured by Issuer's present and future rights, title and interest against the Custodian, by an agreement of security of all the Issuer's present and future rights, title and interest in and to the cash account and securities account. European TopSoho owned 53.7% of SMCP as of Dec. 31, 2019. The remaining value due from SMCP is primarily flowing to free float. As a result, leverage through this instrument is in fact higher.

An outline of the company’s organizational structure, taken from a 2017 share prospectus, is below. It shows that China’s Shandong Ruyi and Yinchuan Weixin Industry Funds are the ultimate owners of the retailer via European TopSoho:
 

--Thomas Baker, Jaishree Kalia, Aurelia Seidlhofer
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