LONDON French clothing retailer Vivarte is talking to lenders about potentially resetting its loan covenants to make its 2 billion euro ($2.72 billion) debt pile easier to manage, banking sources said on Friday.
Vivarte, which is owned by private equity firm Charterhouse, breached leverage and interest covenants on its leveraged loans in May.
Vivarte said it had been hit by an unfavorable economic and consumer environment in France, made worse by weather conditions.
The company has also breached August's covenant tests, investors said, but lenders are confident that a long-term solution can be found.
Vivarte has around 600 million euros of cash on its balance sheet and does not require a full debt restructuring as it is able to meet debt repayments for the next three years.
"Vivarte is expected to have breached covenants again and we are prepared to enter talks with the company around this," one investor said.
Vivarte declined to comment on the covenant reset.
Talks with banks and investors are expected to focus on amending loan documents to prevent further covenant breaches which will allow Vivarte to meet its debt targets in future.
Sponsor Charterhouse could also opt to inject fresh equity into the business, banking sources said.
Vivarte will also discuss its latest financial results and new business strategy with lenders.
The company is aiming to refurbish around 150 stores next year after a successful trial in 20 stores where turnover improved by more than 20-35 percent in the refurbished stores.
"I will present the very first promising commercial results of the new strategy ... I am sure that our financing partners will be convinced by all the work done during the last year, and will support Vivarte's ambitious organic growth plan," said Marc Lelandais, Vivarte's President.
Charterhouse bought Vivarte in 2007 backed by leveraged loans totaling 3.43 billion euros which have held their value in the secondary market.
Vivarte's term loans were trading at 85.5 percent of face value and 90 percent of face value on Friday, according to Thomson Reuters LPC data.
(Editing by Tessa Walsh)