Matalan has asked its banks to loosen its covenants on debt incurred in 2010.
According to The Sunday Times, Matalan has asked for a relaxation of covenants on debt, which it took out in 2010 to finance owner John Hargreaves’ £250m dividend.
At the time, Hargreaves secured a £525m funding package, after failing to sell the company to private equity, a move which reduced the company’s debt. A recent slump in profit, however, has resulted in the company struggling to meet all its loan terms.
The retailer has also warned that annual profits will not meet previous forecasts of between £90m and £95m.
Matalan’s request – made ahead of a financial health check next month - transpired after a quarterly conference call with bondholders.
Last week, Matalan reported a 9% rise in like-for-likes for the five weeks to December 31. For the 13 weeks to November 26, the retailer’s like-for-likes edged up 1.3%. Total sales rose 3.5% to £310.8m and EBITDA from continuing operations was £41.7m.
The discount clothing and homewares retailer reported a profit slump of 63% to £13.6m for its second quarter last October, however.
And in November, credit agency Standard & Poor downgraded the retailer’s credit rating.
In its second quarter financials, Matalan blamed the tough climate, promotional activity and higher input costs for the plunge in EBITDA.