Fri 02/12/2021 12:43 PM
Share this article:
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:
EBITDA Multiple
(EUR in Millions)
Bank Overdraft Facility
€265M Unsecured Term Loan due 2024 1
EURIBOR + 2.150%
€200M Unsecured Revolving Credit Facility due 2024
EURIBOR + 1.750%
€40M Bridge Loan 2
EURIBOR + 2.000%
€200M NEU Commercial Paper Program
€140M State-Guaranteed PGE Loan 3
Other Bank Debt
Total Unsecured Bank Debt
IFRS 16 Lease Liabilities
Total Lease Liabilities
€250M Secured Convertible Bond due 2021 4
Total HoldCo Secured Bond Debt
Total Debt
Less: Cash and Equivalents
Net Debt
Operating Metrics
RCF Commitments
Less: Drawn
Other Liquidity
Plus: Cash and Equivalents
Total Liquidity
Credit Metrics
Gross Leverage
Net Leverage

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
Share this article:
This article is an example of the content you may receive if you subscribe to a product of Reorg Research, Inc. or one of its affiliates (collectively, “Reorg”). The information contained herein should not be construed as legal, investment, accounting or other professional services advice on any subject. Reorg, its affiliates, officers, directors, partners and employees expressly disclaim all liability in respect to actions taken or not taken based on any or all the contents of this publication. Copyright © 2021 Reorg Research, Inc. All rights reserved.
Thank you for signing up
for Reorg on the Record!