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As Good As Gone

14 January 2019 by lberuti

NEWLOK’s (New Look Senior Issuer Plc) bonds fell roughly 15pts after the U.K. apparel chain said it had reached an agreement with its bond holders to restructure the £1.5Bln its owes its creditors. They will forfeit their claims in return for new bonds and a majority stake of the restructured business. The current owners, private equity group Brait SE, will hold 30% of the company once the transaction goes through. Eventually, NEWLOK will have £350mln in long term debt and a £150mln in new bonds which will be issued. After the operation, the company’s debt will pay 12% in annual interests which will be partly payable in kind (NEWLOK will have the possibility to skip cash payments by adding more debt to the principal amount). Investors were not expecting the restructuration of the debt to happen that soon, but the retailer cited weak business conditions over the Christmas as the catalyst after it was left with less cash than expected to service its debt. The probability of default over the next 5 years was already very close to 100%. Today’s price action on NEWLOK’s CDS pushed the 1-year probability at 79%. Nobody is betting on the company seeing another Christmas in its current form.