New Look’s future is as uncertain as ever as the insolvent U.K. fashion retailer has failed to find a buyer. The company’s future will now rely upon securing approval from its landlords for its company voluntary arrangement (CVA) proposals, which go to a vote on Sept. 15. As many as 75 percent of New Look’s landlords and other unsecured creditors need to approve the CVA to keep the company’s stores afloat.
If New Look’s landlords and other unsecured creditors don’t approve of the CVA, New Look would have to consider “less favorable alternatives” for its stores, which could include liquidation.
The CVA proposal, which serves as a formal insolvency procedure designed for a business to settle debts by paying a portion of the amount owed to creditors, entails that New Look would rebase the leasehold obligations of 402 stores to a turnover-based rent model. New Look is also asking for a three-year rent holiday on 68 stores through the end of the lease agreements.
The turnover-based rents, also known as revenue-based rents, link occupancy bills to individual stores’ sales, and are proposed to be paid at up to 12 percent of store sales, a statement from New Look said.
“We have been in discussions with our landlords regarding a required move to turnover-based rents since May,” New Look CEO Nigel Oddy said in a statement. “They have given us valuable and constructive feedback, and our CVA proposal recognizes this in a number of material changes we have made since our initial proposal. The proposal we have launched today would relieve the financial pressure on New Look as we navigate the post-Covid landscape, whilst also providing our landlords with greater flexibility over their rental arrangements and ensuring closer alignment of interests with regards to sales recovery.”
Furthermore, the rent proposal requires that minimum rents for the rebased stores in year two would be equivalent to 85 percent of the first year’s rent paid, while minimum rents in the third year, would be equivalent to 85 percent of the second year’s rent paid. The proposal is designed to provide greater certainty and visibility of minimum rental level for the company’s stores.
Many U.K.-based retailers are in similar discussions with their landlords about switching to a more revenue-based rent system in the wake of the Covid-19 pandemic, which prevented many of these retailers from paying rent due to keeping their doors closed from March through May or beyond. As of August, New Look has reopened 459 of its 496 stores in the U.K. and Ireland since lockdown. Store sales are down 38 percent on a comparable basis since June 1, predominantly due to the continued impact of the pandemic on footfall.
The challenges posed by the store closures have forced many of the nation’s biggest apparel retailers to fall into administration, which is the U.K.’s equivalent to a Chapter 11 bankruptcy filing in the U.S.
Like New Look, Frasers Group, which owns U.K. department store House of Fraser, is pushing for rents to change to sales-based agreements from traditional fixed amounts. While the company already closed five House of Fraser stores, leaving 48 in operation, it has not ruled out more closures.
The uncertainty comes even after New Look came up with an aggressive right-sizing plan for its capital structure designed to reduce the debt and interest burden for the retailer, while saving as many as 11,200 jobs.
In August, New Look secured a 440 million pound ($580.6 million) debt-for-equity swap and 40 million pounds ($52.8 million) in new financing to help it continue operations as a going-concern. With the swap, New Look reduced its long-term debt at the operating companies from 550 million pounds ($714.3 million) to 100 million pounds ($129.9 million) with an extended maturity to 2024.
Additionally, the retailer gained access to an operating facility of 70 million pounds ($90.9 million) to provide supplier and other working capital financing with an extended maturity to 2023.
But this restructuring plan won’t come to fruition unless the CVA gets the 75 percent approval it needs from stakeholders in the company. One report from Retail Week indicated that New Look is seeking to persuade at least 10 of its 20 largest landlord creditors to support its CVA to prevent liquidation. Hammerson, Intu, Aberdeen Standard, Unibail-Rodamco-Westfield, British Land, M&G and The Crown Estate are among the institutional landlords involved, the report said.
The company has received overwhelming support for the transaction from its secured creditors with all of its revolving credit facility lenders and operating facility lenders supporting the deal and 90 percent of its bondholders throwing their weight behind it.
In August, New Look’s financial advisor, PWP, initiated a process to solicit potential interest in the group via a sale an alternative recapitalization. The deadline for first round bids was Sept. 8. The retailer said that while “some parties” expressed an interest in certain assets, no bids were received for the share capital of New Look, or for any form of alternative recapitalization.
