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The UK retailer has already replaced a revolving credit facility and £16.7m borrowed under the government’s Covid loan scheme, with a new £60m credit facility, and plans to repay £27m of high-interest loan from its cash reserves. But the company still has £350m of debt due for repayment early next year which will require refinancing.
The Liverpool-based group, with almost 11,000 nationwide employees and more than 200 stores, stated that “the ability to successfully refinance our debts involves geopolitical, economic and market factors outside the direct control of the business”.
This uncertainty “may cast significant doubt on the group’s ability to continue”.
Due to Russia’s invasion of Ukraine, the debt markets for borrowers in Europe remains largely absent.
Matalan tested the water in February but did not secure sufficient support.
Bankers acting for Morrisons, the supermarket chain that also needs to refinance short-term borrowings, have resorted to placing debt privately at a discount due to the difficulty in raising debt on public markets.
Matalan said talks with lenders were “at an advanced stage” and it believed it could complete refinancing by January.
The company is being advised by restructuring experts at Teneo, who also oversaw the recent administration of popular clothing brand Missguided.
But two separate groups of creditors have appointed their own advisors and fixed income analysts said the bondholders could take control of the business, as with Debenhams and New Look.
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He also converted £50m of debt into payments-in-kind notes which allow interest to be rolled up instead of paid out.
It is estimated that £27m of interest has been accrued on these.
The backdrop of rising interest rates means the terms are likely to be less generous than the current 6.75 percent on the older debt.
Matalan is one of several retailers that were able to run with high leverage during a prolonged period of low interest rates, but many others, including Iceland and Asda, completed large refinancings last year.
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