June 13, 2017 / 3:31 PM / 5 months ago

New Look bonds resist rating downgrade

LONDON, June 13 (IFR) - New Look’s senior bonds ignored an S&P downgrade, continuing to trade up on Tuesday though still at distressed levels.

The fashion company’s £177m 8% 2023 senior notes touched 60 on the bid from 57.5 even though S&P cut its rating to B- from B late on Monday.

“It’s been a Street short for a long time. The numbers (earnings) last week were just what the Street wanted. They managed to push the bonds down,” a trader told IFR.

“It’s a case of the Street now trying to cover its shorts.”

On June 6, New Look released worse than expected annual results, triggering a huge slump in the bonds. On June 7 they plunged to a record low of 48.5, down nearly 30 points.

Adjusted Ebitda fell 31% to £155m for the year ending March 25, largely due to a decline in UK sales on fears around Brexit.

Even though the rot in the company’s bonds has stopped for the time being, some investors remain doubtful about the outlook.

“There might be a time when we see it as a buying opportunity. I feel there will be a point, especially on the senior side, when bonds look attractive,” a fund manager said.

“But I think we need to get comfortable that there’s been a bit of stabilization in the operations.”

New Look is seeking to diversify its earnings away from the UK, expanding in China and Europe, and is also trying to boost its online presence.

However, S&P analysts also cut their outlook to negative, reflecting their opinion that “earnings will remain suppressed in the financial year to March 2018.”

Analysts from Lucror Analytics, an independent research firm, emphasized exogenous pressures that could limit the company’s recovery.

“While efforts are underway to recover lost ground in the UK, it remains to be seen if these will suffice to offset the impact from the challenging macro environment, fashion risk and cost headwinds.”

UK consumer spending took a hit for the first time in nearly four years in May, with figures from Visa showing a 0.8% decline versus May 2016, after adjusting for inflation.

However, the high-yield market remains open to retail issuers, with online supermarket Ocado out with a £200m 7NC3 senior secured debut deal on which IPTs have been set at 4.5% area for pricing on Wednesday.

“The general feeling is that the UK retailer will be under pressure but there are winners and losers within that sector,” the trader said. (Reporting by Yoruk Bahceli, editing by Alex Chambers, Sudip Roy and Julian Baker)

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