LONDON (Reuters Breakingviews) - New Look is leading a hot trend on Britain’s high street: hefty debt restructurings. The ailing retailer is writing off three-quarters of its debt in an effort to repair its finances. Like rival Debenhams, it can only survive if stores enjoy a revival. But after a bleak Christmas and with Brexit looming, a rosy future looks far from certain.
Running out of cash is never a good look, yet that is the state New Look finds itself in at the beginning of 2019. A succession of private equity owners saddled it with borrowings of 1.35 billion pounds, lost control of its cost base, took on expensive leases and targeted fickle teen shoppers who lost interest once its skinny jeans became too expensive. On Monday, Executive Chairman Alistair McGeorge finally announced a plan to tackle its leverage, writing off all but 350 million pounds of debt. The radical haircut should rattle the high street. Rival chains like Debenhams are also facing the spectre of a restructuring as they are saddled with similar levels of debt.
Bondholders are hoping the painful restructuring will be the only one New Look needs. The plan will cut its annual cash interest bill in half, from 80 million pounds to 40 million pounds. This was necessary to keep the company afloat as it expects to generate around 84 million pounds of EBITDA in the financial year to March 2019. The deal also gives the company the option of changing the terms of the bond repayments to shrink its cash interest bill to 5 million pounds a year, according to a source close to the restructuring. Investors led by South African investment firm Brait are also injecting 150 million pounds of fresh financing.
Yet even after the hefty haircut, New Look’s net debt will still be more than four times EBITDA. Any recovery depends on a revival in high street fortunes, which seems a distant prospect. New Look on Monday released figures that show revenue is barely growing and that UK sales declined 5.7 percent in the crucial Christmas trading period. If the United Kingdom leaves the European Union without a deal, high street gloom will get worse. Then New Look would need to set the trend with another debt shake-up.
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