January 8, 2018 / 5:01 PM / in 5 months

UK retailers slump but Zoopla kicks off high-yield issuance

LONDON, Jan 8 (IFR) - New Look, House of Fraser and Debenhams bonds hit lows on Monday because of financial stress, but the year’s first high-yield deal for online property platform Zoopla will test how far concerns around UK consumer names has spread to the market.

ZPG, which operates Zoopla, is out with a £200m 5.5-year non-call two senior unsecured note via HSBC and Lloyds and will market the offering in a roadshow running from Tuesday to Thursday.

“It’s definitely an interesting one to be the first name of the year; it’s not something anyone would have expected,” said one investor, who reckoned Zoopla’s digital position could differentiate it from the struggling retailers.

“These guys can at least say we’re not some kind of estate agent with a huge store base that you would be concerned about,” he said.

Zoopla’s deal was announced against the backdrop of a sell-off in UK high-yield retailers, with New Look’s bonds plummeting by up to six points from Friday’s close after reports over the weekend that credit insurers have halted the sale of credit insurance on new shipments to its suppliers, while House of Fraser’s £175m 2020 FRN lost over nine points on the back of news that it is renegotiating its rents.

Debenhams, on the other hand, lost its Double B rating from Moody’s after downgrading its profit forecast last week, but the fall of its £200m 5.25% 2021 note was more modest, at just under two points.

House of Fraser’s floater is now bid around 76, while New Look’s notes are between 17 and 35. Debenhams’s 2021s are trading around 96, according to Tradeweb data.

New Look and House of Fraser carry distressed ratings, at Caa2/CCC+ and Caa1/B-, respectively, while Debenhams is now rated B1/BB-.

NEAR THE END?

With New Look plummeting further into distressed territory and the threat to its supply chain and cashflows, questions arise as to how much longer the company can steer through its troubles.

The loss of these protections have had disastrous consequences for retailers historically, leading to the insolvency of Woolworth, for example.

UK news reports also said that, in addition to New Look’s poor financial results, credit insurers have also been spooked by South African retailer Steinhoff’s accounting scandal. Steinhoff’s biggest shareholder, Christo Wiese, is also the largest stakeholder in Brait, which owns New Look.

While one investor called the developments the “end of the game” for New Look, another stressed that it all came down to the company’s liquidity position.

The company has £208.4m available in cash and liquidity facilities, £100m of which is an undrawn revolving credit facility, according to an investor presentation for its results for the 26 weeks ending on September 23.

New Look will need to pay around £76m-equivalent in coupon payments on its three outstanding bonds in May, according to Thomson Reuters data.

“The revolving credit facility has clearly gotten them through the Christmas season, so the important thing is how they’ve ended Christmas and whether they’ve still got access to the revolving credit facility and how much cash they have on balance sheet,” the second investor said.

New Look is expected to release its next quarterly results in early February.

“We have the liquidity and operating facilities to implement our plans - and we have the time to recover,” the company had told investors in the presentation, adding that Brait remains committed to being a long-term shareholder.

New Look declined to comment on it latest supply chain troubles.

STERLING PIPELINE?

One syndicate banker said volatility around the names could have impacts on sentiment around anticipated high-yield bond deals for UK consumer names, such as Pure Gym and Matalan.

“I think the UK is a bit different - the retailers that have issued bonds recently have been more from continental Europe who will get bailed out by growth in Europe,” the banker said.

But, with other retailers such as Poundland, Next and John Lewis releasing strong results last week, a case-by-case evaluation of UK consumer names is likely to continue, as in 2017. (Reporting by Yoruk Bahceli, editing by Sudip Roy, Philip Wright)

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