Survival mode: Steinhoff in desperate bid to restructure massive debt

JOHANNESBURG — When you’re a company that has a hole in your accounts of more than 6 billion euros and 9.6 billion euros in debt, you know that you’ll have to scramble to keep your head above water. This is exactly the situation that embattled retailer Steinhoff finds itself in as it tries to negotiate with creditors to restructure some of its debt. The Steinhoff share price on the JSE, in the meantime, is something of a tragic wonder to watch as it bounces around the sub-R2 level – a situation that has left many investors and traders wondering about if and when the pulse will finally stop beating… – Gareth van Zyl

By Luca Casiraghi and Janice Kew

(Bloomberg) – Steinhoff International Holdings NV is seeking a three-year extension on most of its 9.6 billion euros ($11.3 billion) of debt as the retailer battles to come to grips with an accounting scandal that’s wiped more than 96 percent off the share price.

The owner of Conforama in France and Mattress Firm in the U.S. presented an initial restructuring plan to creditors in London on Friday it said is “essential” for the company to survive. Steinhoff proposed its holding company debt be extended and that it pay no cash interest, except on loans of the Hemisphere real estate unit.

The company has hired PwC to probe its finances after reporting a hole in its accounts of more than 6 billion euros, with the outcome expected by the end of the year. In the meantime lawsuits are mounting, with ex-Chairman Christo Wiese suing the company for R59 billion ($4.6 billion). Chief Executive Officer Markus Jooste has quit and the company has vowed to bring those responsible for the wrongdoing to justice.

Steinhoff Lenders Presentation by GarethvanZyl on Scribd

In the red

Advisory fees related to legal issues, restructuring costs and investigating the financial irregularities pushed Steinhoff into the red in the six months through March, the company said in a statement. Impairments and losses taken on asset disposals have also weighed on the retailer’s bottom line, it said. Sales rose 1 percent to 9.4 billion euros.

The company’s fall from grace comes after a rapid expansion in which it bought Pepkor, Africa’s biggest clothing chain, from Wiese in 2015. Aside from Mattress Firm, Steinhoff also acquired Poundland in the U.K. and Fantastic Holdings in Australia. As part of a review of the business, Steinhoff rated its companies around the world based on criteria including whether they need funding and if there’s any buyer appetite.

The review found that Mattress Firm and Austrian furniture retailer Kika and Leiner need a cash injection. At the other end of the spectrum, Conforama is seen as sellable but not yet at the right value, while Poundland and Pepkor Europe have been rated stable and marketable.

Here are the main findings:

The company’s restructuring plan aims to treat all the debt raised at Steinhoff’s holding companies as equal, restating it at par value. The company will start negotiations with creditors from next week to get a consensual agreement on the overhaul, or it will apply for court processes in Austria, the U.K. or the Netherlands.

Steinhoff also provided for the first time a snapshot of its inter-company loans, which could impact on the valuation of debt sitting on different parts of its capital structure.

Steinhoff Finance Holding GmbH, the issuer of 2.7 billion euros of convertible bonds, is owed 1.7 billion euros by Hemisphere and its international and European holding companies, while it has 1.9 billion euros of loan payables to the South African divisions, according to the presentation. Titan Premier Investments Pty Limited, a company external to the group and related to Wiese, also owes Steinhoff Finance Holding GmbH about 200 million euros.

Steinhoff Europe AG, which borrowed 4.9 billion euros from banks and funds, has 3.7 billion euros of loan receivables and 1 billion euros of payables to other internal units, it said in the presentation.

Hedge Funds

FTI Consulting is working with bank lenders and hedge funds Attestor Capital and Davidson Kempner Capital Management, which bought bank debt and contributed new loans after the December disclosure of accounting irregularities.

Houlihan Lokey Inc. is representing holders of the convertible bonds, including Centerbridge Partners, Silver Point Capital Management and York Capital Management. Holders of 800 million euros of bonds due January 2025 and funds that bought bank loans issued out of the Steinhoff Europe AG, including Och-Ziff Capital Management, are working with adviser PJT Partners.