Tuesday 24 January 2012

Peacocks' debt-structure doomed it to failure

According to the Telegraph, Peacocks was the subject of a highly leveraged buy-out in 2006, led by two hedge funds. The structure put in place relied heavily on not only senior debt, but also a tranche of mezzanine finance, and a series of expensive so-called payment in kind (PIK) notes in favour of the two main equity holders. The structure and variety of the borrowings was so complex that the administrator has so far been able to  say only that total borrowings stood at £750m at the point of administration last Wednesday.
With total borrowings of £750m, the company had more borrowings pound for pound than it did annual sales, which came in at £720m in the year to April 2010.
Given the current financial climate and cut-throat markets in which the retailer operates, even a Peacocks NAM with a modicum of financial nous* will have seen the writing on the wall years ago...and hopefully suspended supplies before Christmas?
*  Essentially, a company should operate within a gearing level of 30% i.e. borrowing should not exceed 30% of a company’s net assets. In time the Administrator’s report will reveal the Peacock’s gearing level along with the distribution of remaining funds, with suppliers coming end of the list…

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