LetterOne nears Holland & Barrett debt deal
LetterOne, the UK-based investment group founded by sanctioned Russian oligarchs, is set to strike a deal with the lenders behind Holland & Barrett to buy back the £890million debt used to acquire the high street healthcare retailer.
People close to several major Holland & Barrett lenders have told the Financial Times they are preparing to exit following an unusual offer made by LetterOne to buy them out.
Bankers said the offer appeared generous given that it was above the price the debt had recently traded at.
Some also said they wanted to get out of a potentially toxic situation, given lingering concerns over ties with Russia as well as the future of British retail in light of a possible recession.
LetterOne, which has not been subject to sanctions, has decided to sever ties with its Russian owners, including sanctioned oligarchs Mikhail Fridman and Petr Aven, separating their stakes and freezing their management rights.
The strong turnout from lenders so far makes the deal likely to go ahead, according to several people familiar with the deal, although first-round deals won’t close until Friday evening, so there’s no certainty yet. as to the result.
If agreed, the deal will resolve questions over one of the biggest debt maturities looming in the UK corporate market.
Holland & Barrett was bought by LetterOne for £1.7billion in 2017. It now operates around 800 stores in the UK and nearly 1,600 in 19 countries which employ 8,000 people.
“It’s an incredible offer,” said one of Holland & Barrett’s lenders, adding that the loan holders would be foolish not to “take it and run away.”
He added that while there may still be issues with clearing the money due to sanctions-related compliance, lenders received an interest payment on time last month without any issues.
LetterOne said it “expects very strong participation at the lower end of the price range.”
In a letter to its creditors sent last month, LetterOne said it wanted to offer the option of cashing in their assets rather than waiting for the facilities to mature.
He pointed to “concerns expressed by lenders regarding H&B’s performance, the sanctions landscape, the increasingly challenging retail business environment and, additionally, the significant operational and business changes that H&B needs to improve its long-term performance trajectory”.
LetterOne said at the time that it was “time to focus on a great company that provides vital jobs and improves the health and well-being of communities”.
The offer was made at approximately 75 to 80 percent of the original loan value. Each lender must submit its preferred price in a “Dutch auction” process, with LetterOne agreeing to pay the lowest bid for all the debt it needs to take control.
The deal needs just over two-thirds of lenders to agree on its terms, with the rest of the loan holders potentially trapped if they don’t accept the offer. This caused an additional “prisoner’s dilemma,” according to people familiar with the lenders, since no bond investor would want to be stuck with loans.