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Process and liquidity update and waiver proposals to certain financial creditors - BISSPL
STEINHOFF SERVICES LIMITED
(Registration Number: 1983/006201/06)
(the “Issuer”)
Steinhoff – Process and liquidity update and waiver proposals
to certain financial creditors
Steinhoff International Holdings N.V. (“Steinhoff N.V” and with
its subsidiaries, the “Group”)
Process and liquidity update
The Issuer announced on 5 December 2017 that Steinhoff N.V’s
Supervisory Board (the Supervisory Board) had appointed PwC to
investigate certain accounting irregularities that had come to
light and that the publication of the Steinhoff N.V’s
consolidated financial statements for the year ending 30
September 2017 (“2017 Consolidated Accounts”) would be
postponed.
Since the Issuer’s announcement on 5 December 2017:
- The Group appointed Moelis & Company ("Moelis") and
AlixPartners as independent financial advisor and operational
advisor, respectively. Moelis continues to support and advise
the Group on its debt financing and its discussions with
lenders, while AlixPartners continues to assist with the
Group’s liquidity management and operational measures.
- The uncertainty relating to the accounting irregularities and
unavailability of audited financial statements led to
liquidity issues for the Group. As a result, Steinhoff N.V
has been engaged with lenders, bondholders, other financial
creditors and its key credit insurers to ensure that
sufficient liquidity has been maintained for the Group’s
underlying operations and to seek additional liquidity
funding for the central treasury functions of the Group and
the various operating businesses.
Steinhoff N.V has acted on a number of fronts in order to
stabilise the Group’s operations and the main developments since
5 December 2017 are summarised below.
1. Governance changes
Several steps have been taken to strengthen the governance
of Steinhoff N.V. On 8 December 2017, it was announced that
the Supervisory Board had established a sub-committee of
three independent non-executive directors (Heather Sonn,
Johan van Zyl and Dr Steve Booysen) to provide a regular
interface with the senior management team. On 14 December
2017, Steinhoff N.V further announced that Heather Sonn had
been appointed as the acting Chair of the Supervisory Board.
Following recent changes, the Management Board of Steinhoff
N.V. now comprises: Danie van der Merwe (acting Chief
Executive Officer) and, pending formal appointment at the
general meeting of Steinhoff N.V., Philip Dieperink (Group
Chief Financial Officer and continuing Chief Financial
Officer of the Steinhoff UK sub-group, a position held since
September 2007), Alexandre Nodale (deputy Chief Executive
Officer and continuing Chief Executive Officer of the
Conforama business) and Louis du Preez, who joined the Group
in June 2017 as Group Legal Counsel after more than 20 years
in private practice (Commercial Director).
On 4 January 2018, Steinhoff N.V also announced that it is
looking to appoint an external independent Chief
Restructuring Officer and steps to secure this appointment
are underway. The Supervisory Board continues to keep the
governance of the Group under review and a number of
candidates are in the process of being approached to
strengthen the independence of the Supervisory Board.
2. Accounting investigation
Steinhoff N.V’s announcement on 5 December 2017 included
reference to the fact that PwC had been engaged to perform
an independent investigation into those matters that had been
raised by Deloitte in relation to the 2017 Consolidated
Accounts. PwC has been working with Steinhoff N.V and its
legal advisers in relation to the accounting irregularities
and the necessary preliminary steps in relation to their
investigation have been taken. The Supervisory Board has
instructed that the scope of the investigation is not limited
in any way, so as to allow those investigations full access
to the Group. The Group aims to provide an update on progress
with the accounting enquiries as soon as it is able to do so.
3. Engagement with financial creditors
Members of the Management Board of Steinhoff N.V. and
representatives of the key business units met with
representatives of the Group's European banks and credit
insurers in London on 19 December 2017. The related
presentation and recording was made available on Steinhoff
N.V’s website on 19 December 2017. That meeting was followed
by a separate meeting with the Group’s lenders in South Africa
on 21 December 2017 and more recently, on 10 January 2018. In
those meetings, Steinhoff N.V. was able to reiterate the
strength of the financial position and trading performance
of the businesses and investments in South Africa and the
trading performance and opportunities in the businesses
outside South Africa. At those meetings, Steinhoff N.V.
emphasised the priority of achieving stability across the
Group’s operating companies and the continuation of the
European central office functions. It was confirmed that
there was a need in the short term to obtain liquidity for
the central functions within Europe. The Group has provided
notice to certain of its European-based financial creditors
of a meeting to be held in London on 26 January 2018.
4. Local financing updates and liquidity measures
USA
On 22 December 2017, the Mattress Firm business in the United
States announced that it had succeeded in obtaining a new
US$75 million asset backed financing for its business which
includes the option to upsize the financing up to US$225
million, subject to certain conditions.
UK
On 4 January 2018, it was reported that the Pepkor Europe
(which includes Poundland UK) and Steinhoff UK sub-groups had
entered into a credit facility of up to £180 million to
finance its working capital and operational requirements.
Australia
The Australian business announced in its trading update on
28 December 2017 that it is an independent, profitable and
financially strong business delivering positive cash flows
with its own banking facilities and is not dependent on
working capital support from Steinhoff N.V.
France
In relation to the Conforama sub-group, Conforama is
currently exploring options for its own financing should such
a requirement arise. Conforama also reached an agreement on
11 January 2018 to sell its 17% stake in Showroomprivé for
approximately €79 million (subject to regulatory consent), a
transaction which will raise further liquidity for the
business.
South Africa
As noted above, at the South African lenders’ meetings on 21
December 2017 and 10 January 2018, Steinhoff N.V and its
advisers were able to reiterate the positive financial
position and trading performance of the businesses and
investments in South Africa.
Central Europe
At a central European level, AlixPartners continues to work
with senior management to assist with liquidity and cash
management requirements to support the European business
units and assets. Philip Dieperink, as new Group Chief
Financial Officer, and the management team are working
closely with AlixPartners in respect of the cash management
analysis being undertaken, and on the practical
implementation of identified cash management measures. The
foregoing measures, when combined with a small number of non-
core asset sales, have resulted in liquidity being maintained
across the Group during this period.
5. European financing
Steinhoff N.V. has obtained the support of its lenders in
South Africa for interim liquidity support for the Group’s
European operations from the Group’s subsidiaries in South
Africa. Based on current projected near-term liquidity
requirements in Europe, Steinhoff N.V. is seeking support in
the amount of €200 million. The first installment of €60
million will be received in the week ending 19 January 2018
(for which Steinhoff N.V. has obtained the approval of the
Group’s lenders in South Africa and the necessary regulatory
consent). Steinhoff N.V. is seeking the necessary approvals
and consent for further installments of the balance. It is
expected that any funds so received will be available to meet
business critical payments during the next phase of the
Group's stabilisation plan.
Steinhoff N.V. has also been in recent discussions with
several potential funders to provide liquidity facilities to
the Group, including those who are existing creditors and/or
investors in the Group. To date, additional external
liquidity has not been obtained in the time available given
the complexity of the Group structure and the terms of the
existing financings, although additional external liquidity
may be required in the future.
Timing of trading update
In prior years, the Group has reported on the trading performance
of its underlying businesses for the quarter ending 31 December
in the last week of February. The Group expects to keep to that
timetable this year, when it will report on the trading
performance of the Group’s business units.
Debt service
The Group currently expects to be in a position to pay cash
interest on all its existing financial indebtedness at the
ordinary contractual rate over the near term forecasted period.
Way forward
Steinhoff N.V’s objective of achieving stability within the
Group and, more specifically, its financing arrangements, is
being sought by the implementation of the following measures:
- maintaining trading performance of the individual business
units;
- detailed cash management actions and liquidity support for
the Group; and
- a commitment to resolve, as soon as possible, the
uncertainties around any accounting issues.
In the coming months, the Group expects to undertake the
following measures to put in place further stabilisation
measures and a de-leveraging plan, namely:
- a refinancing and redemption of some or all of the financial
indebtedness within South Africa. It is anticipated that this
will have the effect of releasing additional funds which will
be used to provide any additional necessary liquidity for the
remainder of the Group. Steinhoff N.V. aims to complete this
process as soon as practicable with the support of its lenders
in South Africa;
- the realisation of a limited number of assets to support
additional liquidity for the Group as required, together with
any external financings if needed; and
- development of a plan to address the Group’s financial
indebtedness.
Waiver proposals to be made to certain financial creditors
Steinhoff N.V. has received support from its financial creditors
in recent weeks in its efforts to maintain stability. To further
build on those recent measures and to achieve a continuation of
the Group, protection of its valuable trading assets and
development of a plan to address its financial indebtedness, the
Group will shortly be recommending that certain of its financial
creditors support the Group by providing limited waivers under
certain of the Group’s existing European financing arrangements.
It is important to note that the waivers will not be proposed
in respect of: (i) the new and any subsequent financings of the
Mattress Firm business; (ii) the recent financings of the Pepkor
Europe (which includes Poundland UK) and Steinhoff UK sub-groups
(and any subsequent financings for those sub-groups); (iii) the
financing arrangements of the South African businesses of the
Group; (iv) the financing arrangements of the Australian
businesses of the Group; or (v) the local financings of the
Conforama sub-group.
The Group will be seeking responses to its proposals for the
above-mentioned waivers in the coming weeks and will provide an
update in due course. While Steinhoff N.V. is confident that it
will receive sufficient support from its relevant finance
providers to obtain these limited waivers (once proposed), there
can be no assurance that Steinhoff N.V. will be able to reach
agreement with its finance providers on acceptable terms or at
all.
Investors in the Issuer are advised to exercise caution when
dealing in the securities of the Group.
The Standard Bank of South Africa Limited
Debt Sponsor
Date: 19 January 2018
Date: 19/01/2018 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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