Matalan Memo 020221
- Understand why and how we expect Matalan to attempt a CVA in conjunction with a debt restructuring via UK schemes of arrangement (Part 26 or Part 26A) or to consider a pre-pack administration sale or secured debt transfer scheme with respect to the business
- Understand why we think Matalan’s 1st lien Senior Secured Notes (1L SSNs) have good recovery prospects and why the business has a defendable competitive position even in a COVID-impacted world
- Restructuring analysis – scenarios involving CVA, UK schemes and pre-pack sales; recovery estimates across capital structure
- Comparison to CVA / debt restructuring via scheme(s) at New Look in Mar-18/Jun-19 and again in Sep-20; comparison to CVA / pre-pack administration at Debenhams in Apr-20; how Matalan is significantly better positioned (competitively and financially) than both New Look at Debenhams were and how it is not over-rented in the same way; analysis of Matalan’s negotiating power vs landlords
- Financial projections (including of liquidity) and valuation
- Market data – UK value clothing retail market size, market shares and trends, sales and EBITDA densities, rent per sq ft and selling space / store estate comparisons across major players
- Does Matalan really need a CVA or would any attempt at one largely be an attempted expropriation of value from landlords in favour of secured creditors? Comparison of Matalan’s financial, business / competitive and store estate / rent positions vs prior UK retail CVA / debt restructuring cases
- What strategies are available to Mr John Hargreaves to maintain ownership of the business in a financially attractive way for him?
- Is it possible for Matalan’s 2nd lien Senior Notes (2L SNs) to see a meaningful recovery?
- What inferences can we draw from Matalan’s new financing and debt modifications achieved in COVID-impacted 9m 21 regarding: (a) banks’ willingness to support the business; and (b) Mr John Hargreaves’ willingness to support the business?
- What are the prospects for Matalan to recover its EBITDA (IAS 17) and unleveraged FCF coming out of COVID-19?
- How do project cash flow given many moving parts, particularly over Q4 21E – Q4 22E? Deferred payments (rent, HMRC, suppliers – existing at Q3 21 and potential future deferrals), FX hedge cash impacts, various cost savings, key capex
- How resilient has Matalan’s performance during COVID-impacted periods been, particularly on re-opening of stores?
- View, Variant Perception & Recommendations
- Restructuring Analysis & Recoveries
- Base Case – Financial Projections & Valuation
- Bull Case – Financial Projections & Valuation
- Trading Performance During COVID-19
- New Funding & Debt Modification During COVID-19
- Matalan’s Competitive Position Within UK Value Clothing Retail
Appendix 1 – Gross Merchandise Margin
Appendix 2 – Historic Financials