Lenders to Matalan are preparing to take ownership of the UK value retailer, in a deal set to end businessman John Hargreaves’ control of the chain he founded almost 40 years ago.
Invesco, Man GLG, Napier Park and Tresidor have agreed to exchange about £150mn of what they are owed in return for equity in the business, according to people with knowledge of the arrangement. They will also inject up to £100mn into fresh capital.
Supporters of the transaction, which is due to be announced on Monday, said it should help safeguard the future of the discount clothing and homeware retailer, which employs about 11,000 people and has about 250 stores.
One person close to Hargreaves said the 79-year-old believed it was not in the company’s long-term interest for the lenders to take control, and that the reduction in its debt burden agreed in the restructuring was inadequate.
The deal is set to wipe out more junior debtholders as well as the existing equity held by Hargreaves’ family, the people said, meaning the founder will not be repaid a £50mn loan made in June 2020 and the value of his £18mn second lien debt will also be reduced to zero.
Hargreaves, who left school at 14 to work as a market trader, set up Matalan in 1985 and became one of Britain’s wealthiest people through his success building the Liverpool-based business into a national chain.
The company was a stock market favorite in the early 2000s thanks to the popularity of its membership model and its out-of-town stores. Hargreaves took the business private in 2006.
However, Matalan struggled to make a successful shift online and a recapitalisation left it with a high debt load. The company tested appetite for a debt refinancing about a year ago but was unable to secure enough support.
Several parties, including Hargreaves, made rescue bids in recent months but none of the offers was acceptable to the first-lien bondholders, who ranked first in a debt workout, the people said.
The company carries almost £600mn of gross debt and had been due to refinance £350mn of it this year. The total will fall to about £335mn as a result of the debt-for-equity swap, which was first reported by Sky News.
The lenders are expected to appoint a new chair to replace restructuring expert Paul Copley, who has led the board in recent months during the recapitalisation process.
Discussions are ongoing between the lenders and Nigel Oddy, interim chief executive, about whether he will run the business on a permanent basis.