BRAIT SE - New Looks agreement in principle with a group of senior secured noteholders on terms of balance sheet restructuring

Release Date: 14/01/2019 10:15
Code(s): BAT
 
Wrap Text
New Look’s agreement in principle with a group of senior secured noteholders on terms of balance sheet restructuring

Brait SE
(Registered in Malta as a European Company)
(Registration No. SE1)
Share code: BAT ISIN: LU0011857645
Bond code: WKN: A1Z6XC ISIN: XS1292954812
LEI: 549300VB8GBX4UO7WG59
("Brait")

ANNOUNCEMENT OF NEW LOOK’S AGREEMENT IN PRINCIPLE WITH A GROUP OF
SENIOR SECURED NOTEHOLDERS ON TERMS OF BALANCE SHEET RESTRUCTURING
AND FINANCIAL PERFORMANCE UPDATE

1. Introduction

   Shareholders in Brait are advised that the portfolio company New
   Look Retail Group Limited (“New Look”) has today announced that
   it has reached an agreement ‘in principle’ with certain of its
   key stakeholders in relation to the main terms of a transaction
   aimed at deleveraging and strengthening New Look’s balance sheet
   (the “Transaction”) and is providing an update on its financial
   performance.

   The agreement in principle is the result of constructive
   discussions held between New Look, a group of holders of its £700
   million 6.5% Senior Secured Notes due 2022 and €415 million
   Floating Rate Senior Secured Notes due 2022 (collectively, the
   “SSNs”) (the “Bondholder Committee”) and Brait (New Look’s
   majority shareholder but here acting in its capacity as a
   significant holder of SSNs), which collectively represent today
   over 50% of the outstanding SSNs.

   Furthermore, New Look has also obtained a substantial number of
   the required consents to raise £80 million of interim funding to
   support the business in the short-term to allow the Transaction
   to be implemented. The interim financing will be underwritten by
   the Bondholder Committee and Brait, but will also be open to
   participation by other eligible SSNs holders (the “Bridge
   Facility”).

   In summary, subject to the requisite approvals:
      • Based on the terms of the Transaction, New Look’s long-term
        debt will be significantly reduced from £1,350 million to
        £350 million, resulting in a materially delevered balance
        sheet
      • The Transaction will provide New Look with a more flexible
        capital structure, significantly lowering its overall
        annual cash interest payment from £80 million to c.£40
        million with greater debt servicing flexibility
      • The reinstated SSNs maturity will be extended to 2024,
        reducing refinance risk
      • New Look will also be supported by a new £150 million
        capital raise via the issuance of New Money Bonds, which
        would refinance the £80 million Bridge Facility and provide
        additional liquidity to accelerate investing in the
        business to drive growth and profitability                                                           
     •  Transaction expected to complete in the course of Q1 FY2020
        (April-June 2019)
     •  The equity allocation in New Look assuming successful
        implementation of the Transaction is expected to be:

     - 72% to the subscribers for the New Money Bonds
     - 20% to the holders of the existing SSNs
     - 5% to New Look’s management team
     - 3% to certain other stakeholders (includes the Senior Notes as defined below)

2. Rationale for the Transaction

   Following a difficult FY2018, significant progress has been made
   by New Look’s management team in FY2019 to deliver on its well-
   defined turnaround measures aimed at improving business
   performance and restoring growth and profitability. However, New
   Look’s capital structure has represented a significant constraint
   to the business, in particular in light of UK retail market
   conditions that have been extremely challenging.

   The agreement in principle constitutes an important outcome for
   New Look, as the Transaction will provide the business with a
   delevered capital structure, significant liquidity and adequate
   financial flexibility, to support the future development of the
   business.

3. New Look financial performance update

   Conditions in the UK retail market have continued to be very
   challenging in FY2019. Despite the difficult market conditions,
   New Look’s like-for-like (LFL) performance showed a positive
   trend from Q1 FY2019 through to mid-November, driven by the
   turnaround measures launched at the start of the fiscal year.

   Total UK LFLs (UK Retail and UK E-commerce) improved from -4.2%
   in Q1 to -2.3% in Q2, with broadly flat UK Retail store LFLs in
   H1 FY2019 offset by declining E-commerce sales as a result of New
   Look’s change in strategy to focus on profitable sales rather
   than absolute sales growth, plus the impact of the upgrade to the
   E-commerce platform in September FY2018.

   Core clothing in stores outperformed the British Retail
   Consortium (BRC) by +5.6pts in H1 FY2019, with further progress
   continuing into Q3, with Accessories also improving relative to
   the BRC. Combined with the annualisation of the changes to E-
   commerce at the start of Q3, Total UK LFLs improved to +4.8% in
   October and +8.9% in November. This was despite continued
   challenges on Footwear which still performed poorly compared to
   New Look’s expectations and the market.

   However, in late November and December increased headwinds,
   driven by a decline in footfall and a subsequent increase in the
   level of promotional activity to stimulate trade across the
   market, resulted in Total UK LFL sales of -5.7% for December
   (resulting in Q3 Total UK LFLs of +0.9%).

   The decline in total UK sales was further impacted by the loss of
   stores as a result of landlord enforced closures from the Company
   Voluntary Arrangement (“CVA”) approved in March 2018. However,
   the exit rights now sit with New Look and therefore New Look
   believes it now has the ability to flex its cost base and
   business model from stores to online more easily than competitors
   if required.

   This resulted in marginal EBITDA generation during the third
   quarter, which necessarily impacted adversely on liquidity,
   particularly given that this period is usually the most cash
   generative over the course of the fiscal year.

   New Look’s EBITDA for FY2019 is projected to be £84 million
   EBITDA from the core business (comprising UK retail, E-commerce,
   Republic of Ireland and 3rd Party E-commerce)and a £(27)m EBITDA
   loss from non-core business (comprising China, France, Belgium,
   Poland, Franchise and others), below initial forecasts. As a
   consequence of recent developments, in light of current difficult
   market environment, also considering additional uncertainties
   related to Brexit, it is necessary for New Look to address its
   capital structure and strengthen its liquidity profile so that
   the business can react to market challenges and accelerate the
   implementation of its turnaround strategy.

   New Look continues to make good progress in delivering improved
   operational stability, having already identified and implemented
   a number of well-defined turnaround measures to improve business
   performance and restore growth. In addition to £78 million of
   cost savings already identified and actioned in FY2019, New
   Look’s management team is continuing to pursue additional
   opportunities, which are expected to provide further benefits in
   the coming months.

4. Terms of the Transaction

   New Look has received support from the Bondholder Committee and
   Brait to provide and fully underwrite the £80 million Bridge
   Facility, which will strengthen New Look’s liquidity profile and
   provide sufficient runway to enable a comprehensive restructuring
   to be consummated.

   Provision of the Bridge Facility is further facilitated by an
   amendment of the existing Credit Facility Basket, which would
   allow the Bridge Facility to rank senior to the SSNs and the
   £176.7 million 8% Senior Notes due 2023 (“Senior Notes”), but
   junior to the existing £100 million Revolving Credit Facility
   (“RCF”), with respect to security enforcement proceeds.

   Eligible holders of the SSNs will have the opportunity to
   participate for their pro-rata share of the Bridge Facility,
   based upon their holdings in the SSNs.

   To further strengthen New Look’s operating flexibility, the
   Transaction will, upon closing, include £150 million of new money
   (the “New Money Bonds”) (which are also being underwritten by the
   Bondholder Committee and Brait) that will be used to refinance
   the Bridge Facility and provide New Look with additional
   liquidity to support the business in a sustainable manner and
   cover transaction costs. The Bondholder Committee, Brait and any
   eligible holder of SSNs that elects to participate in the Bridge
   Facility will also be committing to provide the New Money Bonds
   on a pro-rata basis to their participations in the Bridge
   Facility.

   The New Money Bonds will pay 8% per annum cash interest, plus 4%
   per annum PIK (and any cash interest may be toggled to PIK at New
   Look’s election, provided that there shall be an incremental 2%
   per annum PIK interest for the portion of interest which has been
   toggled). This provides enhanced flexibility to New Look whilst
   recognising the support of the noteholders provided pursuant to
   the New Money Bonds and the restructuring. The new financing will
   have a 5 year tenor from the closing date of the Transaction and
   will rank pari-passu with the reinstated SSNs described below.

   Providers of the New Money Bonds will also receive 72% of the
   equity of New Look post-restructuring, which will be allocated on
   a pro-rata basis based on respective participation in the New
   Money Bonds.

   The existing SSNs (pre-Transaction total of £1,073 million) will
   be exchanged into £250 million new SSNs which will rank pari-
   passu to the £150 million New Money Bonds and will have the same
   economic terms. The reinstated SSNs will also receive 20% of New
   Look’s equity post-restructuring, allocated on a pro-rata basis
   to existing holdings of SSNs.

   The existing RCF and Operating Facilities will be reinstated at
   par and their priority ranking as to security enforcement
   proceeds would not be affected by the Transaction.

   Post-transaction, 5% of New Look’s equity would be reserved for
   New Look management team’s incentive plan.

   Certain other stakeholders in the structure may share up to 3% of
   the equity post-transaction (of which 2% will be assigned to
   eligible holders of the Senior Notes in exchange for conversion
   of their Senior Notes subject to a requisite majority of the
   Senior Noteholders agreeing to support the Transaction) subject
   to the final outcome of the implementation and other diligence
   and tax analysis which will need to be completed prior to
   completion of the overall restructuring.

   The Transaction remains subject to a number of conditions,
   approvals and other uncertainties. New Look is targeting the                  
   completion of the Transaction in the course of Q1 FY2020. A
   further announcement will be made in due course.

5. Effects of the New Look restructuring on Brait

   The effects on Brait are expected to be as follows:

        •   Brait fully impaired its equity and shareholder funding
            investment in New Look in its reporting period ended 30
            September 2017. Brait’s equity holding in New Look post the
            Transaction will be between 18% and 30%, depending on the
            take up by other SSNs holders in the Bridge Facility and
            the New Money Bonds.
        •   Brait’s 18.2% holding of the SSN's were valued at 30
            September 2018, using closing quoted prices, including
            accrued interest, at £111 million (R2.05 billion).
            Following the Transaction, these SSNs held by Brait will be
            exchanged into around £45 million of new SSNs. Applying an
            assumed GBP/ZAR exchange rate of R17.75, this will result
            in a reduction of about R2.20 to Brait’s NAV per share
            relative to 30 September 2018.
        •   The Bond Committee and Brait will underwrite the Bridge
            Facility and the New Money Bonds pro rata for which fees
            will be received on the conclusion of the restructuring.
            Depending on the take up in the Transaction by other SSNs
            holders, Brait will be required to advance between £9
            million and £33 million for the New Money Bonds, quoted net
            of receipt of restructuring fees and the debtor factoring
            finance that Brait has with New Look. The amount advanced
            will be funded from Brait’s existing Pound Sterling cash
            resources.
        •   Post the Transaction, depending on the take up by other
            SSNs holders, Brait will hold between £27 million and £53
            million of New Money Bonds

Malta

14 January 2019

Brait's primary listing is on the Euro MTF market of the Luxembourg
Stock Exchange and its secondary listing is on the Johannesburg
Stock Exchange.

Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)

Disclaimer
This announcement includes forward-looking statements. These
forward-looking statements include all matters that are not
historical facts, statements regarding the intentions, beliefs,
projections or current expectations concerning, among other things,
New Look’s results of operations, financial condition, liquidity,
prospects, growth, strategies and the industry in which New Look
operates.
                                                             
The information contained in this announcement has not been
independently verified and no independent evaluation or appraisal of
New Look has been undertaken. None of Brait, New Look nor either of
their affiliates, nor their or their affiliates’ respective
officers, directors, employees, agents or advisers, make any
representation or warranty, express or implied, as to (nor accept
any liability whatsoever, whether in contract, in tort or otherwise,
in relation to) the reasonableness, accuracy, reliability or
completeness of this announcement or any statement, information,
forecast or projection made herein, or any other written or oral
communications transmitted to the recipients in connection herewith.
This announcement has been prepared on the basis of the position as
at the time of the announcement, and the information provided will
not be updated or corrected after the date of the announcement.
There can be no assurances that the forecasts or expectations are or
will prove to be accurate.

By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future. Forward-
looking statements are not guarantees of future performance and that
the actual results of operations, financial condition and liquidity
and the development of the industry in which New Look operates may
differ materially from those made in or suggested by the forward-
looking statements contained in this announcement. Factors that may
cause New Look’s actual results to differ materially from those
expressed or implied by the forward-looking statements in this
announcement include, but are not limited to: (i) New Look’s
inability to execute its business strategy, (ii) New Look’s ability
to generate growth or profitable growth and (iii) political changes
in countries relevant to New Look’s operations, including changes in
taxation.

In addition, even if New Look’s results of operations, financial
condition and liquidity and the development of the industry in which
New Look operates are consistent with the forward-looking statements
contained in this announcement, those results or developments may
not be indicative of results or developments in future periods.

Brait does not assume on its behalf or on behalf of New Look any
obligation to review or confirm expectations or estimates or to
release publicly any revisions to any forward-looking statements to
reflect events that occur or circumstances that arise after the date
of this announcement.

This announcement does not constitute a financial product,
investment, tax, accounting or legal advice, a recommendation to
invest in any securities of New Look, or any other person, or an
invitation or an inducement to engage in investment activity with
any person. This announcement has been prepared without taking into
account the objectives, financial situation or needs of any
particular recipient of this announcement, and consequently the
information and opinions contained in this announcement may not be
sufficient or appropriate for the purpose for which a recipient
might use it. Any such recipients should conduct their own due                                                           
diligence, consider the appropriateness of the information and
opinions in this announcement having regard to their own objectives,
financial situation and needs, and seek financial, legal, accounting
and tax advice appropriate to their particular circumstances.

This announcement is not an offer to sell or a solicitation of an
offer to buy or exchange or acquire securities in the United States
and no offer, tender offer, sale, exchange or acquisition of
securities is proposed in a jurisdiction where such offer, tender
offer, sale, exchange or acquisition would be illegal. The
securities referenced in this announcement may not be offered, sold,
exchanged or delivered in the United States absent registration or
an applicable exemption from the registration requirement under the
U.S. Securities Act of 1933, as amended. The securities mentioned in
this announcement are not, and will not be, registered in the United
States.




                                                         
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