London, 17 January 2019 -- Moody's Investors Service has today downgraded the rating of the GBP700
million fixed rate notes and EUR415 million floating rate Senior Secured
Notes due 2022 (of which GBP 1,073 million remains outstanding)
issued by New Look Secured Issuer plc to C from Caa3. The current
Corporate Family Rating (CFR) and the probability of default rating (PDR)
of New Look Retail Group Limited (New Look) and the rating of the GBP200
million backed unsecured notes due 2023 (of which GBP177 million remains
outstanding) issued by New Look Senior Issuer plc remain unchanged at
Ca, Ca-PD and C, respectively. The outlook remains
negative reflecting the continued uncertainty on the final capital structure
as well as the execution risk on the restructuring plan.
"We've downgraded New Look's instrument ratings to reflect
the proximity to a distressed exchange, which constitutes a default
under our methodologies, and the higher-than-expected
losses for financial creditors if the company's proposed debt restructuring
plan is successfully implemented," says Roberto Pozzi,
Senior Vice President at Moody's and lead analyst for New Look.
RATINGS RATIONALE
The downgrade of New Look's senior secured note ratings follows
the announcement on 14 January 2019 that the company has reached an agreement
in principle with a group of senior secured noteholders on the terms of
an envisaged debt restructuring plan. The agreement proposes a
reduction in gross reported debt to around GBP500 million from GBP1,350
million based on a combination of equitization and a distressed exchange
for new debt. The existing revolving credit and operating facilities
would be reinstated at par and their priority ranking would not be affected
by the transaction.
The proposed restructuring plan assumes a recovery of around 23%
on the senior secured notes and nil on the unsecured notes. Whilst
the C rating currently assigned to the unsecured notes is consistent with
Moody's approximate expected recoveries associated with ratings
for defaulted or impaired securities, the downgrade of the secured
notes reflects the higher-than-expected losses for financial
creditors as a result of the implementation of the proposed plan.
The proposed debt restructuring plan is subject to approval of at least
75% of the creditors by value and 50% by number as well
as to a number of conditions which are required in the near term.
If approved, the restructuring should complete between April and
June 2019.
The rating action reflects the proximity to a distressed exchange,
which is a default under Moody's methodologies, if the proposed
restructuring plan is successfully completed as planned. In light
of the debt reduction under the announced plan, the assumed recovery
rates under the senior secured notes and the unsecured notes of about
23% and nil, respectively, are consistent with Moody's
instrument ratings of C.
Under the proposed terms, holders of the secured notes will be converted
into GBP250 million of new secured notes and will be invited to participate
in a GBP150 million issue of notes that will pay interest partly in cash
and partly in kind - management will have the flexibility to 'toggle'
cash interest into PIK interest - to refinance an initial cash
injection of GBP80 million. The existing GBP100 million revolving
credit facility would be reinstated at par and continue to rank ahead
of all other debt.
After the restructuring, the holders of the new money notes would
own 72% of the equity of the company, the holders of the
secured notes 20%, management 5% and holders of the
unsecured notes 2%. Existing shareholders would retain 1%
of the equity post restructuring.
Assuming successful completion of the proposed plan, management
considers it would have sufficient liquidity to support the business through
the restructuring process.
RATIONALE FOR NEGATIVE OUTLOOK
The negative outlook reflects the lack of visibility on the final capital
structure as well as the execution risk on the restructuring plan.
Failure to complete the debt restructuring as planned could lead to lower
recoveries than those currently assumed in the CFR of Ca. The negative
outlook also reflects the company's ongoing decline in sales and cash
outflows.
WHAT COULD CHANGE THE RATING UP/DOWN
Upward pressure may arise if New Look i) successfully completes the proposed
financial restructuring plan as envisaged, leading to a material
reduction in gross leverage; and ii) maintains adequate liquidity.
Downward pressure on the ratings could result from changes to the proposed
financial restructuring plan that further lower creditor recoveries or
lead to outright insolvency.
LIST OF AFFECTED RATINGS
Downgrades:
..Issuer: New Look Secured Issuer plc
....Backed Senior Secured Regular Bond/Debenture,
Downgraded to C from Caa3
Outlook Actions:
..Issuer: New Look Secured Issuer plc
....Outlook, Remains Negative
The principal methodology used in these ratings was Retail Industry published
in May 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Roberto Pozzi
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Marina Albo
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
