Steinhoff International Holdings began seeking sign-off from lenders for a debt restructuring plan that will support the South African retailer’s balance sheet for three years and prevent a potential collapse.
The owner of chains including Mattress Firm in the U.S. and Conforama in France has been negotiating for months with creditor groups represented by financial advisers FTI Consulting, Houlihan Lokey and PJT Partners to reach an agreement on a way to postpone the repayment of borrowings. In May, it proposed a three-year extension across all its holding companies’ loans and bonds from the restructuring date, with no cash interest payments owed for the period.
Steinhoff has been on the brink of insolvency since December, when it revealed accounting irregularities and said CEO Markus Jooste had quit. The company has about 9.4 billion euros ($11 billion) of debt and is writing off 12.4 billion euros and counting from the value of assets as part of an investigation by auditors at PwC.
U.S. financial institutions such as Bank of America, Citigroup, JPMorgan Chase and Goldman Sachs reported hundreds of millions of dollars of losses in the fourth quarter stemming from the Steinhoff scandal.
Bank of America suffered a large margin-lending loss to the South African billionaire Christo Wiese, who had used his stake in Steinhoff as collateral to borrow about 1.25 billion euros ($1.53 billion) from at least eight global banks, according to a document that details the loan exposure, Bloomberg has previously reported. BofA hired the law firm Davis Polk & Wardwell to conduct an internal review of a $292 million charge-off in the fourth quarter, The Wall Street Journal reported in February.
Under the latest restructuring proposal, debt holders of units Steinhoff Europe AG, Finance Holding GmbH and Stripes U.S. Holding Incorporated will receive a 10% annual interest payment made up of more debt as opposed to cash. The deal will be finalized if Steinhoff receives sufficient approval by July 20 and must be implemented within three months, the retailer said Wednesday.
“The debt holders have essentially seized control, because that was the only way they were going to agree to effectively not receive much cash for the next three years,” Charles Allen, a retail analyst at Bloomberg Intelligence, said by phone. “The immediate liquidation of the business gives them less chance of recovering their money than this arrangement does.”
Steinhoff needs to secure support for a so-called lock-up period from holders of at least 85% of SEAG debt, and 75% from other classes of creditors. Creditors will receive a payment if they sign up by Monday.
The terms of the restructuring also set out proposed changes to Steinhoff’s corporate governance, including a working group made up of creditor representatives to oversee possible changes to the supervisory and management boards.