If the deal passes regulatory muster, two newly established companies, HoldCo 1 and HoldCo 2, are expected to take control of Edcon’s operating subsidiaries from Bain Capital, as the debt-laden retailer seeks to relieve its debt burden.
HoldCo 1 will issue about R2.2bn in new dollar-denominated notes to refinance and pay off existing debt. Some of the cash will also be used to inject liquidity into the group.
HoldCo 2 will issue two different notes — denominated in euros and dollars — worth a collective R12.2bn to refinance existing debt.
Edcon’s empowerment trust and managers will receive economic rights to distributions from HoldCo 2.
“This important milestone in the history of the Edcon Group follows the recent payment deferral implemented in May 2016 and the securing of R1.5bn of bridge financing,” Edcon group CEO Bernie Brookes said in a statement.
The group successfully deferred payment to December 2016, making R1.6bn in cash available to it. The bridge financing was made available in two equal tranches.
Brookes said the deferral, bridge finance, and the proposed restructure “all indicate the significant support we are receiving from our creditor base to ensure that we have a strong, robust and re-energised Edcon going forward”.
Taken private in a highly leveraged R25bn buyout by Bain in 2007, Edcon has struggled to grow at a fast enough rate to pay down debt.
“We have been living beyond our means, expenditure was more than our income,” Brookes told a news conference.
New owners of the company, which also sells household goods and footwear, are Standard Bank, Barclays Africa Group, FirstRand, Standard Chartered and Investec. Others are Franklin Templeton and Harvard Pension Fund.
The retailer has been grappling with an over-leveraged capital structure for several years, after troubles in its credit business in 2014 coincided with an economic slowdown and weak consumer spending in SA.
Brookes said Edcon reached “a catastrophic situation in March” and had to choose between business rescue or not paying debt holders.
With Reuters
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