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UK's New Look announces restructuring plan

New Look Retail Group Ltd. said Jan. 14 that it has reached a restructuring agreement in principle that will cut its long-term debt by roughly 80% from £1.35 billion to £350 million via a debt-for-equity swap.

The announcement prompted the fashion retailer's bonds to fall sharply on Jan. 14: its £700 million of 6.5% notes due 2022 were down 13.5 points at 31.5; the €415 million of E+450 notes due 2022 were off 12.5 points at 30.5; and the £176.7 million of 8% of notes due 2023 were down five points at 17.

The agreement was struck with the bondholder committee representing holders of the company's 2022 secured bonds, both the fixed- and floating-rate tranches, and majority shareholder Brait SE, an investment holding company that was included in the restructuring discussions because it holds a significant portion of New Look's secured notes. The retailer's revolving credit providers and a majority of the holders of its 8% senior notes due 2023 also consented to the agreement — a requirement needed to allow it to raise interim financing.

New Look has secured £80 million of interim funding, which will be refinanced by £150 million of new-money bonds issued as part of the restructuring deal. The bondholder committee and Brait have underwritten the £80 million interim facility, which will be opened up to other creditors.

Under the agreement, holders of the £150 million of new-money bonds will receive 72% of the group's equity. The new five-year bonds will offer an 8% annual margin plus 4% payment in kind, or PIK, with a toggle option on the cash interest, subject to an incremental 2% PIK interest.

The company plans to exchange the outstanding secured notes for £250 million of new secured notes that will offer the same terms as the new-money bonds and rank pari-passu. Holders of the £250 million of new secured notes also will receive 20% of the restructured business's equity.

The plan foresees that the company's £100 million revolver and operating facilities will be reinstated at par, with their ranking and security rights unaffected.

The agreement will see the company's debt servicing costs halve from £80 million annually to roughly £40 million. The transaction is expected to complete between April and June 2019.

The deal also will see net leverage fall from 16x as it stands, to roughly 5x post-restructuring, based on the company's fiscal 2019 EBITDA forecast, according to the company statement.

New Look also provided a trading update as part of the announcement that shows EBITDA for fiscal 2019 is projected to be £84 million from the core business and a £27 million loss from the noncore business, which falls below initial forecasts.

Total U.K. like-for-like sales in the fiscal second quarter shrank 2.3% year over year, an improvement from a decline of 4.2% in the first quarter as a broadly flat retail store performance was offset by a slide in e-commerce as the company shifted its focus to profitable sales rather than absolute sales growth.

The secured notes are rated CCC/Caa1/C, and the unsecured notes CC/Ca/C.