PRIVATE equity firm Bain Capital has agreed a debt for equity swap deal valued at $1.5bn for Edcon, the chief executive of the retailer said on Tuesday.
Taken private in a highly leveraged R25bn buyout by Bain in 2007, Edcon has struggled to grow at a fast enough rate to pay down debt.
“We have been living beyond our means, expenditure was more than our income,” CEO Bernie Brookes told a news conference.
Under the deal, Franklin Templeton, one of the world’s biggest fund managers, will become a top shareholder in Edcon, which sells brands such as Tom Taylor, Top Man and Salsa.
Other owners are Standard Bank, Barclays Africa Group, FirstRand, Standard Chartered, Investec and Harvard Pension Fund.
The retailer has been grappling with an over-leveraged capital structure for several years, after troubles in its credit business in 2014 coincided with an economic slowdown and weak consumer spending in SA.
Brookes said Edcon reached “a catastrophic situation in March” and had to choose between seeking business rescue or not paying debt holders.
Edcon, which vies for market share with The Foschni Group, Truworths and international chains such as Zara and H&M, asked holders of two euro and-dollar denominated bonds in April to defer an interest payment to December to boost liquidity.
A 425 million euro bond — originally pitched in late 2013 as a bridge to an initial public offering — was written down last year in a distressed exchange offer that reduced the company’s debt pile by R4.5bn and its interest payments by R1bn.
Brookes said Bain spent more than R6.4bn in capital but had not taken out any dividends and would receive no proceeds from the deal.
Bain did not immediately respond to a request for comment.
In SA's largest private equity deal at the time, the structure of the deal required Edcon to sell high-yielding bonds just before the country slipped into a recession in 2009 and shortly before the global financial crisis.
With the rand losing half its value since 2007, Bain’s investment was deep underwater and Edcon struggled to pay down foreign-currency denominated borrowings.