Steinhoff takes begging bowl back to lenders to save it from collapse

EDINBURGH — Steinhoff is seeking backing for a three-year debt restructuring deal, Bloomberg reports. The global retailer, built by South African business players based in Stellenbosch, has been perilously close to collapse since details of financial irregularities spilled out into the open late last year. Lenders would like to see the company survive because they have a greater chance of recovering their money than if the company is liquidated. But, news has unfolded daily of the disingenuous moves by former CEO Markus Jooste. And, suspicions that the current crop of Steinhoff bosses and directors were in the know about complex deals off balance sheet that were designed to feather the nests of Jooste and friends just won’t go away. It’s a big ask from Steinhoff, which has a staggering debt mountain and also inflated the value of assets over the years. – Jackie Cameron

By Luca Casiraghi and Janice Kew

(Bloomberg) – Steinhoff International Holdings NV began seeking sign-off from lenders for a debt restructuring plan that will support the South African retailer’s balance sheet for three years and prevent a potential collapse.

The owner of chains including Mattress Firm in the US and Conforama in France has been negotiating for months with creditor groups represented by financial advisers FTI Consulting, Houlihan Lokey Inc. and PJT Partners Inc. to reach an agreement on a way to postpone the repayment of borrowings. In May, it proposed a three-year extension across all its holding companies’ loans and bonds from the restructuring date, with no cash interest payments owed for the period.

A company sign stands inside the Steinhoff International Holdings NV company headquarters in Stellenbosch, South Africa, on Monday, May 14, 2018. Photographer: Dwayne Senior/Bloomberg

Steinhoff has been on the brink of insolvency since December, when it revealed accounting irregularities and said Chief Executive Officer Markus Jooste had quit. The company has about 9.4 billion euros ($11 billion) of debt and is writing off 12.4 billion euros and counting from the value of assets as part of an investigation by auditors at PwC.

Three-month deadline

Under the latest restructuring proposal, debt holders of units Steinhoff Europe AG, Finance Holding GmbH and Stripes U.S. Holding Incorporated will receive a 10 percent annual interest payment made up of more debt as opposed to cash. The deal will be finalised if Steinhoff receives sufficient approval by July 20 and must be implemented within three months, the retailer said in a statement Wednesday.

“The debt holders have essentially seized control, because that was the only way they were going to agree to effectively not receive much cash for the next three years,” Charles Allen, a retail analyst at Bloomberg Intelligence, said by phone. “The immediate liquidation of the business gives them less chance of recovering their money than this arrangement does.”

The shares extended gains, climbing 30 percent to 0.15 euros as of 5:14 p.m. in Frankfurt. and closing above R2 in Johannesburg for the first time since early May. The stock is still down more than 95 percent since the crisis erupted.

The company’s 800 million euros of bonds due January 2025, and issued out of SEAG, rose 3 cents on the euro to 77 cents, the highest since Dec. 5, according to data compiled by Bloomberg.

Governance changes

Steinhoff needs to secure support for a so-called lock-up period from holders of at least 85 percent of SEAG debt, and 75 percent from other classes of creditors. Creditors will receive a payment if they sign up by Monday.

The terms of the restructuring also set out proposed changes to Steinhoff’s corporate governance, including a working group made up of creditor representatives to oversee possible changes to the supervisory and management boards.

A litigation committee is also being established by each board to oversee billion-dollar legal claims, including shareholder class-action cases in Germany and the Netherlands and former chairman Christo Wiese’s claim of about $4.8 billion.