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July 17, 2013 11:24 pm
One of the biggest French private equity deals of the last buyout bubble is in trouble after fashion retailer Vivarte breached the conditions of its bank loans.
The owner of numerous fashion and shoe retail chains in France, including Kookaï, André and Naf Naf, has been hit by a deterioration in trading conditions caused by the country’s sluggish economic growth and recent poor weather.
Its owner, UK-based private equity group Charterhouse Capital Partners, may need to inject cash into the company to keep its lenders from trying to seize control.
The buyout group recently extended Vivarte’s loans so they will not mature until 2018. It is now willing to seek more breathing room on the terms of the company’s loans in another round of negotiations that could start as soon as this autumn, according to people with knowledge of the matter.
Private equity groups in Europe are still grappling with assets bought at expensive prices and financed with large amounts of cheap debt during the boom years. Charterhouse bought Vivarte in a deal worth €3.3bn including debt in 2007, investing about €500m of its own equity into the transaction – or 12.5 per cent of the €4bn buyout fund it manages.
It hired a new chief executive, Marc Lelandais, a year ago, after the company’s longtime boss Georges Plassat was poached to lead supermarket chain Carrefour. Mr Lelandais has since reorganised the group, cut the number of brands from 25 to 12, and battled against a sudden deterioration at La Halle, a suburban warehouse clothing unit and also the company’s biggest profit contributor.
Vivarte, which has €2.2bn of net debt, has breached its so-called quarterly leverage ratio covenant in May, because operating profit was lower than expected, Mr Lelandais told the Financial Times. The company has enough cash to meet its debt repayment obligations next year and in 2015.
“The economic context and a terrible weather did not help,” Mr Lelandais said.
He said sales were growing about 7 per cent year-on-year in June and July.
Lenders set financial ratios, or covenants, to monitor borrowers’ financial health. If a company breaches a covenant, it gives them certain rights, including, in some cases, the theoretical right to request full repayment.
In the case of Vivarte, the company can wait until the next covenant check, at the end of August. If it passes the test, the previous breach is deemed “cured”. If it does not, Charterhouse has to inject cash to help meet the covenant – in a so-called equity cure. On the basis of the May test, the private equity house may need to add about €17m, according to a person with knowledge of the matter.
Charterhouse is separately trying to sell assets to return cash to investors. It is in talks to dispose of French perfume retailer Nocibe, and is sounding bidders for its stake in French telecom towers operator TDF.
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