The struggling clothing retailer New Look may be forced to put itself up for sale in order to complete a rescue refinance.
New Look, which has 500 stores, will hand bondholders up to 92% of the company in return for reducing its £1.35bn debt pile to about £500m.
The company closed 85 stores last year through an insolvency procedure after an annual loss of nearly £235m, which its chairman blamed on its product range becoming too young and edgy and on an ill-starred international venture.
It launched the financial restructure after sales at established stores fell 5.7% in December.
In the first phase of the financial restructure, bondholders this week approved an £80m short-term injection of cash, which the company will begin to have access to next week.
More than 90% of senior bondholders also backed the refinancing proposal, which involves raising £150m in further long-term debt as part of the debt-for-equity swap.
But in a note to bondholders seen by the Guardian, New Look said in order to finalise the restructure, it “may be required to launch a sale process for the group in which other interested parties could participate”.
Experts said New Look may need to demonstrate there was no better alternative to the restructure in order to avoid any legal challenge from creditors, particularly from those holding £176m in unsecured bonds.
These “junior” bondholders will be almost wiped out, with just 2% of the equity being offered after the restructure.
Alistair McGeorge, the executive chairman of New Look who returned to run the company towards the end of 2017, said the backing of its main lenders was “a vote of confidence in our strategy, the strength of our brand and management’s ability to deliver the wider turnaround plans already being implemented”.
He added: “We look forward to continuing working with our key stakeholders to finalise and implement our planned restructuring to secure the future and long-term profitability of the company.”
New Look said the remaining steps mainly involved issuing legal documentation and it expected to finalise its restructure by April.
Last week, the ratings agency Moody’s downgraded New Look’s credit rating on £1bn of debt to C, its lowest possible junk bond status.
Another ratings agency, S&P, also downgraded New Look’s debt on Thursday before the restructuring announcement, saying the retailer would face a liquidity crisis if the move were not approved next week.
New Look’s owner, Brait, will own at least 18% of the group’s equity, down from 90%, on completion of the restructure. Management will own 5%.
Brait, a private equity company whose biggest shareholder is the South African tycoon Christo Wiese, paid £780m for a majority stake in New Look in 2015.
The company is now the group’s largest bondholder after buying up debt on the open market.