Jul 16, 2013
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Charterhouse's Vivarte breaches loan terms

Jul 16, 2013

French clothing retailer Vivarte, owned by private equity firm Charterhouse, has breached the terms on 3.43 billion euros ($4.51 billion) of loans, banking sources with direct knowledge of the matter said on Tuesday.

Charterhouse bought Vivarte in 2007 backed by the 3.43 billion euros of loans and in May last year it conducted an amend and extend of its loan facilities, pushing out the maturity of its debt by two years, according to Thomson Reuters LPC data.

However the company, which owns the Kookai fashion label, has struggled amid tough macro economic conditions and now has to consider how to deal with its burdensome debt load, bankers said. They declined to be identified due to the sensitivity of the matter.

The company communicated with its debt investors on Monday that it has breached leverage and interest covenants and will announce in due course what it intends to do, the bankers said.

Charterhouse declined to comment. Vivarte was not immediately available to comment.

One option would be to inject 10 million-15 million euros of equity into the business and Charterhouse has 15 days to decide whether to do this, the bankers added.

The equity cure would be in addition to using cash on the company's balance sheet, which totals around 650 million euros, to pay down debt. Cash on the balance sheet was recently boosted by 230 million euros through the sale and leaseback of 91 properties, including company headquarters, bankers said.

The company's net leverage stands at around 6.96 times. Using cash on the balance sheet could reduce leverage to 6.3 times, but it would still need the equity cure to get to its 6.05 times agreed leveraged ratio.

Some bankers said they expect Charterhouse will not inject equity and will allow Vivarte to operate in default - a precedent recently set by a number of French companies, including plumbing group Frans Bonhomme.

According to one of the bankers, a full debt restructuring is not on the cards in the near term.

"Vivarte is a long way off from a debt for equity swap," he said. "There is still a lot of liquidity and value in the business."

Vivarte's senior loans have dropped around 6 points on Europe's secondary loan market to 79.75 from 85.88 at the end of 1Q13, according to Thomson Reuters LPC data.

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