Privately held company in the retail space. Dramatic expansion over the preceding 5 years expanded their store footprint to > 60 stores. Growth was funded via the re-investment of profit and through the deferral of payments to unsecured creditors in particular the ATO. A slowdown in the sector coupled with the failure of some of the new store footprint meant that the group went from strong profitability to a scenario where they were losing money.
An analysis of the store by store profitability saw that 35 of the stores generated an EBITDA of >15m. The remaining stores were all operating at a loss and were locked into long term leases that meant that they could not be exited easily.
A company restructure via a Deed of Company Arrangement (“DOCA”) was proposed that would see the injection of capital from a newly created SPV. A funding requirement of A$32m was needed with A$12m coming from equity sources and a further A$20m sourced from a special situation lender who got comfortable with the cashflow of the group post DOCA. Within 18 months the company was able to return to more normalised financing arrangements through a combination of principal amortisation and the fact that they now had stable earnings base post restructure.
