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How much Edcon owes, and to whom

Banks, landlords, insurers (who are landlords) in the queue.
The rescue practitioners make the point that without an accelerated sale of the business or parts thereof, a wind-down process is still preferable to liquidation. Image: Supplied

The list of Edcon’s secured creditors, published as part of the business rescue plan on Monday, reveals that a total of R3.7 billion is owed to more than 80 entities.

The list of unsecured creditors is likely far larger (running to many more billions), but these businesses are either fourth or last in the queue, depending on their status.

The business rescue practitioners have announced that they are pursuing an accelerated sales process of parts of the Edcon group after no buyers nor any investors were found for the entire business.

Read:
Edcon – Third time lucky? (Mar 30)
Edcon can be saved, say administrators (May 20)
Edcon looking for buyers to rescue struggling retailer (Jun 9)

Aside from the two operating divisions (Edgars and Jet), which are arguably less and more attractive respectively, the group’s second-look credit book will no doubt find a buyer. It is unclear what value the Thank U rewards business would have by itself. They hope to conclude this by July with a completion of the transaction(s) as soon as practically possible. The practitioners have noted there are 15 interested parties.

The UIF is owed more than R888m

The single largest creditor is the Unemployment Insurance Fund (UIF), represented by the Public Investment Corporation. The UIF is owed R888.8 million, thanks to instruments that allow it a conditional claim under business rescue (and/or liquidation). It invested a total of R1.2 billion into the group as part of a R2.7 billion recapitalisation in March last year.

Next-largest is the R834 million owed to various Apollo entities, while the third-biggest claim is from AlbaCore Capital (R496 million). The former is the global private equity group, while the latter is a European investment firm that focuses on “private debt and opportunistic credit investments”. These entities would have claims based on them being a bondholder under the former Edcon structure. Those debt holders became equity holders as part of the recapitalisation.

Four of the country’s five largest commercial and investment banks (with the exception of Nedbank) have claims totalling R976 million

Standard Bank R380 013 468
Absa Bank R310 925 395
Investec Bank R156 524 372
FirstRand Bank (through RMB) R128 763 782
R976 227 017

 

A further three global investment banks have claims totalling R358 million

Goldman Sachs R174 046 745
Standard Chartered Bank R100 379 117
Deutsche Bank R83 721 787
R358 147 649

 

Listed property groups have claims totalling roughly R100 million

Growthpoint Properties R34 496 037
Redefine Properties (including related entities) R21 251 672
Liberty Two Degrees R9 377 156
Resilient R8 585 937
Hyprop Investments R7 847 338
Vukile Property Fund R4 374 438
Accelerate Property Fund (including related entities) R2 482 251
Attacq R2 441 295
Rebosis Property Fund (including related entities) R2 332 500
Investec Property Fund R1 869 460
Fortress Income Fund (including related entities) R1 843 798
Arrowhead Properties (including related entities) R757 293

Other major landlords who are secured creditors include Pareto (R6.8 million), and insurers Liberty Group (R18.7 million) and Old Mutual (R11.7 million). This, along with the amounts owed to listed and unlisted property groups. comprises the unpaid rent accrued since Edcon filed for business rescue. The practitioners have been paying rent based on a percentage of turnover being generated in each store. Any unpaid leases prior to Edcon filing for business rescue will be treated as unsecured.

As at April 30, assets totalling nearly R4.4 billion were held as security by the creditors. These include property, plant, equipment, trade receivables, amounts owed by related parties (mostly African operations), sundry receivables and prepayments as well as cash.

Under the business rescue plan, the secured creditors will receive all trading proceeds being generated from the sale of stock under the current business rescue process as well as the proceeds from the sale of Edcon’s second-look credit book.

The rest of the list …

Any proceeds thereafter, in other words from the accelerated sales process, will be allocated in the following order:

  • Business rescue costs (including advisors and legal costs)
  • Employees (to the extent that they have not been paid during the business rescue process)
  • Secured (post-commencement finance) creditors
  • Unsecured (post-commencement finance) creditors
  • Employees (to the extent that they have not been paid prior to the business rescue process)
  • Unsecured/general concurrent creditors.

The business rescue practitioners make the point that without an accelerated sale of the business or parts thereof, a wind-down process is still preferable to liquidation. Secured creditors would receive 19 cents in the rand under a wind-down process, and only 5.5 cents in the rand in a liquidation.

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COMMENTS   18

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Not surprised that Edcon is going belly up. They are far to eager to open accounts with just about not paperwork. In 2013 when I wanted to get a cell phone contract I was told no because I had no credit score. The lady at the Vodacom literally told me to open an account with Edgars and buy anything on it coz they give easy accounts. Went to Edgars, did not need a salary slip or even proof of address. All I gave was my ID. Opened my account and was given R 5000 limit in a matter of minutes. No vetting at all. On top of that you get 6 months of interest free repayment. Tell me how does this business model make sense???

The rot started when they got rid of Mrs Symington in Menswear and the delightful Miss Jones in Bras and panties….

Marcelle, I personally don’t think giving accounts to everyone is what got them.

On the contrary, I think when they did away with the 6 month interest free accounts and started charging insane amounts for store cards is what got them. People could’ve shopped at better stores with better quality, (like Woolworths, TFG etc.) for lower attached fees .

See, back then, getting an edgars card was just about the first and only step into attaining a credit score. So eventually young people people bought with their reasonable credit limits, managing to pay back in 6 months without all the unreasonable add-ons. Cause where else could you buy interview suits. After that, they got a loyal customer base. Until they nailed them with fees without warning. People paid off their accounts and bought from other shops, most of whom had lower fees.

It was literally 3 or so months after that decision that their profits went into free fall and have never recovered.

Interesting. I didn’t know any of that. Hardly buy at edgars for years now 🙂 thanks for sharing.

The rot started when they got rid of Mrs Symington in Mens

This is what you get when companies are put on life support for political reasons.

What is also in testing is that the great write down of the landlords portfolios still hasn’t happened yet.

Government didnt try to save the business for political reasons. The were literally thousands of jobs on the line. The issue here is a structural issue, where you have senior merchandise executives who have been there for far too long and lost track of the fashion and retail trends, thus resulting in poor merchandise choices. I am talking from a point having worked there for most of my retail career.

More and more Companies in liquidation and less and less tax payers in the loop due to unemployment to pay into the exchequer. For the government this is an unworkable combination, but it is created by the government so it becomes their problem to solve.

What did government create?

Seems highly unlikely to me that the amounts owed to Landlords that are listed as their claims in a liquidation scenario arose from their capitalisation of debt into equity late last year. This is almost certainly the residual unpaid rent, so they are true creditors for these amounts, not equity holders, surely?

I will give my local STD bank manager a copy of this article showing extend of Std,s possible loss.THE Manager who gave me a lecture on reckless credit advancement when they declined my loan application due to the fact that i had no debt.Interesting times

You need an STD manager?

I for one would have no problem with them not paying the landlords.

The commerical landlords have shot themselves in the food during Covid19. They have also been hardline rent seekers who have pushed up their retals ruthlessly. It’s not like they are suddenly going to change from their ruthless business model.

They already have thousands of shops closing down in malls. Rental revenues will drop massively over coming months.

The landlords honestly deserve every little bit of those drops.

Capital growth is a very important factor when considering raising value for investors,

Debt is important in an entity but to a specific extent, the more debt an entity has, that makes it very hard to distribute capital to investors after considering free cash flow,

The debt levels have strained the entity’s book value which causes the entity’s intrinsic value to be so insignificant that no buyer or investor will be willing to have a stake,

I saw this coming when news on their liabilities growing faster than their assets

Perhaps Edcon and Cell C should compare their respective failure plans to determine if they share any commonalities.

So, a *sophisticated investor* has found a way to blame the government for this.

The problem in all fairness started the day Bain came in bought Edcon at a significant premium, loaded the balance sheet with debt priced in euro’s and dollars whilst earning Rand revenue when the Rand continues to depreciate. Bad move. yes the debtors book with all the charges also impacted, but fundamentally they were over geared from day one. Pity UIF will loose most of the R 888 million

I am worried about Truworths. It is exhibiting the signs of Edcon.

End of comments.

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