March 9, 2018 / 2:54 PM / 6 months ago

Steinhoff's loans fall as lenders await waiver request

LONDON (LPC) - The price of Steinhoff International’s (SNHJ.J) loans is falling in the secondary loan market as banks continue to sell to hedge funds ahead of an anticipated waiver request on the troubled South African retailer’s €10.7bn debt, banking sources said.

The price of Steinhoff’s debt has fallen to around 65% of face value from around 73% in early February as concern remains around the company’s debt position, loan traders said.  

“Certainly with the price dropping to the mid 60s, people are getting more nervous about it,” a senior loan trader said.

Steinhoff is fighting for survival after discovering accounting irregularities in December that triggered an 85% share price slide in the group and a raft of changes in its boardroom and leadership.

The company asked convertible bond holders for a waiver in February to help ease its liquidity position, while auditor PwC assesses the scale of Steinhoff’s accounting problem.

The company is expected to fold the bond waiver request into a larger waiver across all of its company’s debt instruments which would be effective until June, several sources said.

Steinhoff has not yet asked for the waiver, which could be complicated by the loan sales to distressed investors, as it would need to be agreed consensually by all of Steinhoff’s debt holders, bankers said.

“The waiver is difficult to ask for. I don’t know if it will get done. It is a tough one – there are a lot of creditors to bring in. It could just become too difficult to do,” a creditor said.

Steinhoff declined to comment.

If Steinhoff seeks a waiver as expected, creditors are expected to make several requests in return.

Lenders want reassurances from Steinhoff that it has a contingency plan in place to deal with the €1.9bn equivalent of debt which matures this year. 

Convertible bondholders are also expected to ask that Steinhoff’s money or assets are not moved from South Africa to Europe to avoid diluting their guarantees.

HEAVY TRADING

Loan traders estimate that more than €1bn equivalent of Steinhoff’s loans have traded recently in euros and dollars, with around €400m-€500m trading in the last couple of weeks. Some lenders have sold as much as €200m each. 

“North of €1bn has traded in the last few weeks and the biggest tickets are €200m,” the senior loan trader said.

Concern is mounting as the South African company’s woes start to affect its 40 plus multinational retail operations, which include Britain’s Poundland.

Steinhoff said on February 28 that its working capital ‘dried up’ in the first quarter.

“Each individual company seems to be struggling now as well. Before it was a South African issue,” the senior loan trader said.

Debt in all of Steinhoff’s loans has been trading - including B1, B2 and B3 term loans, a euro-denominated revolving credit and Schuldschein loans.

Pricing across the tranches is moving into line with the euro revolving credit, which was priced at 65.67 on March 7, according to Thomson Reuters LPC data.

Natixis exited its US$110m-equivalent exposure in February and JP Morgan also sold a block in early February at around 73% of face value.

Hedge funds, including Silver Point Capital, Centerbridge Partners and Davidson Kempner Capital Management, have bought hundreds of millions of euros of Steinhoff’s debt, loan traders said.

Taconic Capital, Blackstone, Centerbridge and SVP bought debt in February. Many early buyers have lost money, however, as the value of Steinhoff’s loans has continued to fall.  

“A few people have been burned who bought high and are now selling out and taking a bit of a loss,” the senior loan trader said.

Banks including BNP Paribas, HSBC and Nomura have announced provisions on loans that were attributed to Steinhoff.

Bank of America Merrill Lynch, Citibank, Goldman Sachs and JP Morgan all took hits in the fourth quarter related to Steinhoff, IFR reported.

Editing by Tessa Walsh

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