2020 Retailers in trouble thread
Discussion
hyphen said:
I don't think you can have any sympathy for the creditors, they are also in business to make a profit, and made an informed decision to work with this client.
But wouldn't that informed decision be based on an estimated level of security / collateral to be realised upon liquidation?Admittedly i am not hugely familiar with pre-packed insolvency and not sure what the creditors get, if anything. Or if the debt is rolled over and they remain as creditors after a grace period.
But to be fair - say a UK bank doubles their bad loan kitty, and in 6 months time makes X number of back office or branch staff redundant to cover it, despite those persons not having been involved at all....
menousername said:
But wouldn't that informed decision be based on an estimated level of security / collateral to be realised upon liquidation?
Admittedly i am not hugely familiar with pre-packed insolvency and not sure what the creditors get, if anything. Or if the debt is rolled over and they remain as creditors after a grace period.
But to be fair - say a UK bank doubles their bad loan kitty, and in 6 months time makes X number of back office or branch staff redundant to cover it, despite those persons not having been involved at all....
If you offer credit to a business customer you’re basically giving them an unsecured loan. You have to make that choice. Many times I’ve turned down customers to whom I was unwilling to do just that.Admittedly i am not hugely familiar with pre-packed insolvency and not sure what the creditors get, if anything. Or if the debt is rolled over and they remain as creditors after a grace period.
But to be fair - say a UK bank doubles their bad loan kitty, and in 6 months time makes X number of back office or branch staff redundant to cover it, despite those persons not having been involved at all....
A key part of making that decision is assessing their financial statements - who do they owe money to, on what terms, etc? You have to assume if they have chunky secured debts that the creditors can take control if things go south.
The common model is for the company to owe its owners lots of money - they lend rather than investing these days. If those debts are secured (as they often are), in an insolvency the holders of the secured debt (ie the owners) get paid first (net of a small fraction kept back for others).
Let’s take Benson’s Beds as an example. They were owned by Blue Group which was in turn owned by Alteri Investors.
Alteri Blue Group Cayman, LTD or a related company will have held a fixed and floating charge over the whole of Benson’s assets.
Let’s say Benson’s owed Alteri / Blue £50m. Let’s say the Administrators managed to persuade Alteri to pay £40m to buy the business & assets out of the insolvent company.
A proportion of that £40m (the “prescribed part”) is kept back to pay unsecured creditors - about £125k in this case. The costs of Administration will also be secured - let’s say £2m here? Other sundry costs perhaps bring the total up to £5m (huge guesses here - likely much less).
So Alteri pay out £40m and in return get £35m back (worst case). In return they get a debt-free business free of historical debts.
Now, Alteri might have to assume some suppliers’ debts as a condition of being allowed to buy more stock. But since they’ll also have the business’ stock that won’t be such a hardship.
The moral? Make sure your company owes you money & make sure you have first charge security over the assets; if you do then your company can shed liabilities when the going gets tough...
skwdenyer said:
If you offer credit to a business customer you’re basically giving them an unsecured loan. You have to make that choice. Many times I’ve turned down customers to whom I was unwilling to do just that.
A key part of making that decision is assessing their financial statements - who do they owe money to, on what terms, etc? You have to assume if they have chunky secured debts that the creditors can take control if things go south.
The common model is for the company to owe its owners lots of money - they lend rather than investing these days. If those debts are secured (as they often are), in an insolvency the holders of the secured debt (ie the owners) get paid first (net of a small fraction kept back for others).
Let’s take Benson’s Beds as an example. They were owned by Blue Group which was in turn owned by Alteri Investors.
Alteri Blue Group Cayman, LTD or a related company will have held a fixed and floating charge over the whole of Benson’s assets.
Let’s say Benson’s owed Alteri / Blue £50m. Let’s say the Administrators managed to persuade Alteri to pay £40m to buy the business & assets out of the insolvent company.
A proportion of that £40m (the “prescribed part”) is kept back to pay unsecured creditors - about £125k in this case. The costs of Administration will also be secured - let’s say £2m here? Other sundry costs perhaps bring the total up to £5m (huge guesses here - likely much less).
So Alteri pay out £40m and in return get £35m back (worst case). In return they get a debt-free business free of historical debts.
Now, Alteri might have to assume some suppliers’ debts as a condition of being allowed to buy more stock. But since they’ll also have the business’ stock that won’t be such a hardship.
The moral? Make sure your company owes you money & make sure you have first charge security over the assets; if you do then your company can shed liabilities when the going gets tough...
In a pre pack, anyone is free to buy the business, and do the same thing as “Alteri” is doing. A key part of making that decision is assessing their financial statements - who do they owe money to, on what terms, etc? You have to assume if they have chunky secured debts that the creditors can take control if things go south.
The common model is for the company to owe its owners lots of money - they lend rather than investing these days. If those debts are secured (as they often are), in an insolvency the holders of the secured debt (ie the owners) get paid first (net of a small fraction kept back for others).
Let’s take Benson’s Beds as an example. They were owned by Blue Group which was in turn owned by Alteri Investors.
Alteri Blue Group Cayman, LTD or a related company will have held a fixed and floating charge over the whole of Benson’s assets.
Let’s say Benson’s owed Alteri / Blue £50m. Let’s say the Administrators managed to persuade Alteri to pay £40m to buy the business & assets out of the insolvent company.
A proportion of that £40m (the “prescribed part”) is kept back to pay unsecured creditors - about £125k in this case. The costs of Administration will also be secured - let’s say £2m here? Other sundry costs perhaps bring the total up to £5m (huge guesses here - likely much less).
So Alteri pay out £40m and in return get £35m back (worst case). In return they get a debt-free business free of historical debts.
Now, Alteri might have to assume some suppliers’ debts as a condition of being allowed to buy more stock. But since they’ll also have the business’ stock that won’t be such a hardship.
The moral? Make sure your company owes you money & make sure you have first charge security over the assets; if you do then your company can shed liabilities when the going gets tough...
And it’s often not the case that all historic debts are dumped. Strategically important ones, eg key suppliers are not. The most common one that is dropped are leases - as will be the case with Blue.
If assets are held under fixed charges, there is no prescribed part.
Alpinestars said:
In a pre pack, anyone is free to buy the business, and do the same thing as “Alteri” is doing.
Not in a prepack.Administrators will only allow a prepack where the counterparty has so much security that other creditors are not going to get anything anyway, and if that is the case, the company is in and back out of Administration before anyone else can look at it.
loafer123 said:
Alpinestars said:
In a pre pack, anyone is free to buy the business, and do the same thing as “Alteri” is doing.
Not in a prepack.Administrators will only allow a prepack where the counterparty has so much security that other creditors are not going to get anything anyway, and if that is the case, the company is in and back out of Administration before anyone else can look at it.
loafer123 said:
Not in a prepack.
Administrators will only allow a prepack where the counterparty has so much security that other creditors are not going to get anything anyway, and if that is the case, the company is in and back out of Administration before anyone else can look at it.
I think you’re confusing the level of debt with what a buyer will pay. The secured lender can (but doesn’t have to) hold our for the whole of their debt as the price to be paid for a business. However, because the business is under water, few are willing to pay the full price of the debt. By definition, the lenders trade some of their debt for equity in the newco structure, ie, credit bid for the business at x pence in the £, “write off £- x pence”, and replace it with potential equity upside. Administrators will only allow a prepack where the counterparty has so much security that other creditors are not going to get anything anyway, and if that is the case, the company is in and back out of Administration before anyone else can look at it.
A business is always valued and “marketed” by an Administrator, as he/she has a duty to ALL creditors.
A pre pack is a term used to describe an Administration process where a buyer is found before the company enters Administration. It’s done to protect the value of a business. Not only to sell to secured creditors.
This is a digestible description of what a pre pack is.
https://www.pinsentmasons.com/out-law/guides/pre-p...
Examples of pp to third parties (from memory);
Conviviality to Bestway
Jones bookmaker and Brantano to alteri
Wipac to VW)
Gardman sold to Westland
Marlin sold to peter Jones
Kath kidston to baring private equity
Polestar printing to proventus capital, etc
One of the leading cases on valuations in a pre-pack was one of my restructurings in case you’re interested.
https://www.squirepattonboggs.com/~/media/files/in..._/fileattachment/private_equity_alert_imo_car_wash_a_washout_for_.pdf
From the USA but I think still relevant to the UK.
https://www.youtube.com/watch?v=CC0NLNkJ_gY
NOT BACKING DOWN: Mountainside Fitness CEO Tom Hatten says they're NOT cause of COVID spike
https://www.youtube.com/watch?v=CC0NLNkJ_gY
NOT BACKING DOWN: Mountainside Fitness CEO Tom Hatten says they're NOT cause of COVID spike
The Spruce Goose said:
From the USA but I think still relevant to the UK.
https://www.youtube.com/watch?v=CC0NLNkJ_gY
NOT BACKING DOWN: Mountainside Fitness CEO Tom Hatten says they're NOT cause of COVID spike
The comments on that video, Christ almighty. And people wonder how Trump got elected. https://www.youtube.com/watch?v=CC0NLNkJ_gY
NOT BACKING DOWN: Mountainside Fitness CEO Tom Hatten says they're NOT cause of COVID spike
skwdenyer said:
loafer123 said:
Alpinestars said:
In a pre pack, anyone is free to buy the business, and do the same thing as “Alteri” is doing.
Not in a prepack.Administrators will only allow a prepack where the counterparty has so much security that other creditors are not going to get anything anyway, and if that is the case, the company is in and back out of Administration before anyone else can look at it.
hyphen said:
Teens forming a long line outside barbershops in my area 
A few wearing masks, but otherwise no. And more 50cm apart in the queue than 2m.
Isn't it meant to be 1m from today? Forgive me if I have misunderstood, I really am not very interested.A few wearing masks, but otherwise no. And more 50cm apart in the queue than 2m.
Edited by hyphen on Saturday 4th July 10:02
Alpinestars said:
......
One of the leading cases on valuations in a pre-pack was one of my restructurings in case you’re interested.
https://www.squirepattonboggs.com/~/media/files/in..._/fileattachment/private_equity_alert_imo_car_wash_a_washout_for_.pdf
Linky no worky as too long so https://tinyurl.com/y765ecxk (hope you don't mind Alpinestars)One of the leading cases on valuations in a pre-pack was one of my restructurings in case you’re interested.
https://www.squirepattonboggs.com/~/media/files/in..._/fileattachment/private_equity_alert_imo_car_wash_a_washout_for_.pdf
sleepezy said:
Linky no worky as too long so https://tinyurl.com/y765ecxk (hope you don't mind Alpinestars)
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