Retailers’ Leveraged Loans Slump on Double-Dip Recession Concern in Europe
Retailer LBO Loans Slump on Europe Double-Dip Concern
Matthew Lloyd/Bloomberg
The payment-in-kind notes of U.K. budget-fashion retailer New Look Group Ltd. lost 17 percent to trade at about half of face value in the week to Aug. 5, according to prices from Markit Group Ltd.
The payment-in-kind notes of U.K. budget-fashion retailer New Look Group Ltd. lost 17 percent to trade at about half of face value in the week to Aug. 5, according to prices from Markit Group Ltd. Photographer: Matthew Lloyd/Bloomberg
The threat of a double-dip recession prompted leveraged loan traders to mark down the debt of European retailers by as much as 17 percent, eclipsing losses of less than 1 percent in the rest of the market.
The payment-in-kind notes of U.K. budget-fashion retailer New Look Group Ltd. lost 17 percent to trade at about half of face value in the week to Aug. 5, according to prices from Markit Group Ltd. Madrid-based retailer Cortefiel SA’s term loan B also declined 4 percent to 63.29 percent. The leveraged loan market as a whole fell 0.45 percent last week, its second- biggest weekly decline, to an average bid price of 90.67 percent of face value, Markit said.
“There’s widespread concern about levels of consumption in Europe as there are an awful lot of increased costs putting pressure on consumers’ wallets,” said Dan Gardner, a London- based fund manager at M&G who oversees about 3 billion euros ($4.3 billion). “The retail sector is close to a zero-weighting in our portfolio because of our fears there.”
European investor confidence had its steepest decline on record in August. An index measuring sentiment in the 17-nation euro region fell to minus 13.5 from 5.3 in July, the Limburg, Germany-based research institute Sentix said yesterday. The European Central Bank re-entered the bond markets last week to stem the euro area’s crisis, yesterday buying Italian and Spanish government debt to bolster markets.
Vivarte Loans Fall
Leveraged loans are typically used to fund buyouts. The debt is taken in the name of the acquired company and the burden triggers a downgrade in the target’s rating to junk, or below Baa3 by Moody’s Investors Service and BBB- by S&P. PIK notes allow borrowers to pay interest with more debt instead of cash.
The loans of fellow retailer Vivarte, the operator of Kookai and NAF NAF fashion stores in France owned by Charterhouse Capital Partners LLP, also fell 3.5 percent to 87 percent of face value, according to Markit prices.
New Look is owned by Permira Advisers LLP and Apax Partners Worldwide LLP. Cortefiel is owned by CVC Capital Partners Ltd., PAI Partners and Permira Holdings Ltd.
High-yield bond prices dropped alongside leveraged loans last week, as the extra yield investors demanded to hold the notes rather than government securities surged 74 basis points to 710 basis points, the highest since July last year, according to Bank of America Merrill Lynch data.
“Thursday and Friday last week we saw aggressive trading desk and hedge fund de-risking which accelerated the downward price action in loans,” said Catherine Yelverton, global head of loan trading at HSBC Holdings Plc in London. “Investors are looking to sell assets where they can.”
A so-called term loan B is sold mainly to non-bank lenders such as collateralized loan obligations, bank loan mutual funds and hedge funds. A term loan A is sold mainly to banks and is infrequently traded.
To contact the reporter on this story: Stephen Morris in London at smorris39@bloomberg.net.
To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net.
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