Bondholders anticipate an A&E of the £350m 6.75% SSNs due Jan 2023 as the most likely outcome. Some holders noted that there could be a possible partial equitisation of the £130m 9.5% 2nd lien notes due Jan 2024, however, another source close to the talks said it was too early to say if this was a likely possibility with a number of options currently being considered.

Hargreaves owns a significant chunk of the £130m 2nd lien facility, with one holder putting the figure at £17m to £18m and a second at £20m. Matalan’s founder has held most of his 2nd lien stake since the 2020 restructuring, converting some of his position into equity to smooth the deal. Some of the sources suggested he may look to build up his position if this will assist negotiations. The 2nd lien is currently trading at 44, down from the low 80s in April this year.

Senior bondholders are working with Perella Weinberg and the 2nd lien holders have engaged Houlihan Lokey, as reported. Teneo and Clifford Chance are the company’s legacy advisors and the owners, the Hargreaves family, are working with advisors from Lazard and Paul Hastings.

All parties are working on potential options ahead of the talks which are expected to kick off in September following the summer break, said the sources.

Refinancing? So last season

There is a general consensus among bondholders and advisors that Matalan missed the boat for a straight forward refinancing earlier this year, failing to address its maturity wall before the syndicated markets effectively shut in March. Goldman Sachs sounded out potential investors in January, but the investment bank was unable to seal the deal as the company couldn’t see eye-to-eye with prospective lenders over pricing.

Despite the unclear pathway to a refinancing, the situation is unlikely to spiral into a full-blown restructuring situation. One bondholder noted that the holder base tends to be quite “clubby” and some have been existing lenders for the last decade, which will help them to figure out something consensual.

Summer sales

Matalan’s recent earnings announced on 23 June boosted confidence among bondholders. The retailer hit the magic £100m EBITDA figure for FY 22 (to end-Feb) that many felt was the minimum needed to push out ~£490m maturities piling up over the next 18 months.

Private credit provider Bantry Bay also stepped in to refinance a £50m RCF and CBILS facility due in July-22 with a new £60m 18-month ABL facility, and £25m of expensive 1.5L debt with the same maturity was taken out with cash. The new money provided by Bantry Bay was again seen as a positive sign as it allowed Matalan some breathing space to deal with its significant maturity wall.

As a direct result of macro-economic issues including inflation, rising material and wage costs, Matalan’s earnings are expected to drop over the next 18-months which is playing on the minds of bondholders going into the negotiations. One bondholder told 9fin: “This is peak EBITDA, they performed incredibly well post-reopening, mid-2021, and earnings are only going to deteriorate here given the cost of living crisis.”

Some market participants disagreed with this outlook and noted that Matalan could prove to be a recession proof asset as it generally sells low-cost clothing and homeware and could attract consumers looking for cheaper alternatives as they seek to tighten their belts.

Paul Hastings and Teneo declined to comment. Clifford Chance, Houlihan Lokey, Perella Weinberg and Lazard did not respond to requests for comment.