Bonds in U.K. fashion and homeware retailer Matalan Limited are steady today after the company announced results for the 13 weeks ended Nov. 28. 2020, while also giving a trading update for the five weeks to Jan. 2, 2021.
The company's 6.75% notes due January 2023 were unchanged around 74, while the 9.5% notes due January 2024 were unchanged at 36.5, according to pricing from Refinitiv.
In the third quarter to Nov. 28 (which is Matalan's Q3 FY'21), the group’s total revenue fell to £244.8 million, from £311.7 million in 2020, while EBITDA post adoption of IFRS16 was £54.1 million, versus £59 million the prior year. The company had cash of £184.9 million. Peak trading for the five weeks to Jan. 2, 2021, shows total U.K. revenue of £119.2 million, compared with £134.3 million for the same period in the prior year, while online sales grew 84%.
Matalan — along with other retailers — was forced to shut stores amid three lockdowns in the U.K. last year due to COVID-19 restrictions. On Dec. 19, 2020, the group had to close 62 of its 230 U.K. stores, with a further 30 closed from Christmas Eve.
Last July, Matalan completed a scheme of arrangement procedure at the High Court in London to convert cash interest on its outstanding £80 million of 9.5% second lien notes due 2024 to payment-in-kind, or PIK, a form of interest payment that accrues annually. To help Matalan through the restrictions, it obtained £50 million of financing in June via a £25 million revolving credit facility that was backed by the U.K.’s Coronavirus Large Business Interruption Loan Scheme and new £25 million second-ranking secured New Priority Notes, or NPNs.
Matalan’s existing capital structure remains unsustainable, said S&P Global Ratings in August 2020, and a further restructuring or distressed exchange is likely. Matalan is advised by Deloitte and DLA Piper, while bondholders are advised by Perella Weinberg Partners and Kirkland & Ellis.
Matalan’s bonds date from a two-part issue put in place in January 2018, split between a £350 million 6.75% secured first-lien portion due 2023 and a £130 million 9.5% secured second-lien offering due 2024. The company's revolver was put in place at the same time as the bonds, as a £50 million facility through due 2022 via banks including Barclays, Lloyds and Morgan Stanley. Lenders agreed to waive the springing covenant last April.
Matalan is rated CCC-/Caa1, with a negative outlook from S&P Global Ratings and Moody’s.
The company, which is owned by founder John Hargreaves, is a value fashion and homeware retailer that operates across more than 230 stores, which are mainly located in out-of-town retail parks. It also has an e-commerce platform.