LetterOne nears debt deal between Holland and Barrett

LetterOne, the UK-based investment group set up by sanctions-hit Russian oligarchs, is nearing a deal with the lenders behind Holland & Barrett to pay off the £890m debt.

People close to several of Holland & Barrett’s major lenders have told the Financial Times they are preparing to exit following an unusual offer by LetterOne to buy them out.

Bankers said the offer looked generous as it was higher than the price at which the debt had recently been traded.

Some also said they want an exit from a potentially toxic situation amid ongoing concerns over links with Russia, as well as the future of UK retail amid a possible recession.

LetterOne, which was not subject to sanctions, has severed ties with its Russian owners, including sanctioned oligarchs Mikhail Fridman and Petr Aven, divested their holdings and frozen their management rights.

The high level of lender involvement so far makes it likely that the deal will go ahead, according to several people close to the deal, although the first-round bids won’t close until Friday night, so there’s no certainty about the outcome just yet.

If approved, the deal would resolve questions about one of the biggest upcoming debt maturities in the UK corporate market.

Holland & Barrett was bought by LetterOne in 2017 for £1.7bn. The company now operates around 800 stores in the UK and nearly 1,600 in 19 countries, employing 8,000 people.

“It’s a great offer,” said one of Holland & Barrett’s lenders, adding that the loanholders would be foolish not to “take it and run.”

He added that while there could always be cash settlement issues due to sanctions compliance, lenders received an interest payment on time last month without any glitches.

LetterOne said it “expected very strong participation at the lower end of the price range.”

In a letter to its creditors sent out last month, LetterOne said it wanted to offer the option to redeem its holdings rather than wait for the facilities to mature.

It highlights “lenders’ concerns about H&B’s performance, the sanctions landscape, the increasingly challenging environment facing the consumer retail business and, more broadly, the significant operational and business changes H&B requires to improve its performance over the long term.”

LetterOne said at the time it was “time to focus on a great business 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 pledging to pay the lowest bid for any debt it needs to take control.

The deal requires just over two-thirds of lenders to agree to its terms, with the rest of borrowers potentially being trapped if they don’t accept the offer. This has created an additional “prisoner’s dilemma,” according to those close to lenders, as investors don’t want to be in debt when holding loans.

https://www.ft.com/content/72615a93-ef2c-46bd-be40-cc0c890dc4e6 LetterOne nears debt deal between Holland and Barrett

Adam Bradshaw

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