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It Does Not Look Good

09 October 2017 by lberuti

NEWLOK (New Look) entered the iTraxx Crossover index in 2015, when it was bought by Brait Capital, a South African investor, in a £1.9Bln takeover. Since then, the life of the retailer which sells fashion mainly for women and teenage girls, has got quite complicated. Its risk premium has been relentlessly rising, and already spiked twice this year to distressed level: in June when it warned of challenging times ahead citing an increase in online competition and in August when it announced profits had crashed 60% in the three months to June. Ever since, distressed debt investors have been rumoured to be circling part of the company’s £1.2Bln debt pile. This saga might come to an end in the not too distant future. It was reported in the week-end press that NEWLOK would have hired restructuring specialists, and that Brait would be interested in buying some of the company’s bonds to improve its negotiating position in future debt talks. That was enough for investors to hammer NEWLOK’s risk premium across all maturities, and they pushed the company’s 1-year probability of default to almost 40%. Recently we have been used to entities exiting iTraxx Crossover because they became empty shells without any outstanding debt, NEWLOK could be the first in a while to head for the exit because of a default.