August 9, 2017 / 1:22 PM / a year ago

New Look moves to freefall

LONDON, Aug 9 (IFR) - New Look’s bonds continued their fall on Wednesday after taking a dive on the back of poor results released on Tuesday.

The UK retailer’s £177m 8% 2023 senior unsecured note (Caa2/CCC) traded down to a bid price of 39, from 40.80 at Tuesday’s close, according to Tradeweb data. Its £700m 6.50% 2022 senior secureds (B2/B-) were down to 63 from around 64.24.

On Tuesday morning, following the announcement of quarterly earnings, the unsecureds were trading at 47, while the secureds were at 65.50.

Market sources said the notes are most likely continuing to trade down due to a lack of clarification of investor worries during New Look’s investor call on Tuesday following the results.

Analysts at CreditSights pointed to the disconnect between New Look’s turnaround plan and the “harsh reality” of its performance during the call.

“New Look moved to bridge the credibility gap by talking up the state-of-the-art retail engine it is creating, but was forced to appeal for investor patience, giving up that positive like-for-like growth is not anticipated this year and the company is facing the full FX Brexit headwind now,” they wrote in a note.

New Look’s notes took a similar dip when it released poor annual results in June but managed to bounce back up shortly after. Back then, a trader had said this was due to short-selling.

“We think value breaks in the senior secured notes. We think control of the business resides here” CreditSights analysts wrote, advising holders to sell the unsecureds.

“Should an upturn in the business not be forthcoming in a reasonable timeframe, we assume Brait will try to negotiate with both sets of bondholders,” they added.

African investment house Brait took a 90% equity stake in New Look in 2015.

CASE-SPECIFIC

New Look said in the results that the decline in its earnings was due to challenges it is facing in UK sales, as well as investments in strategic initiatives.

“If the message is: we’re seeing no spending on the High Street, that would impact the wider sector. But, for now, the type of message they’re putting out is that it’s New Look,” said a syndicate banker.

A second syndicate banker agreed, expecting investors to assess retail credits on a case-by-case basis for the time being. (Reporting by Yoruk Bahceli, editing by Philip Wright and Helen Bartholomew)

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