Retailers must refinance £7bn of bank and bond debt in 2012

46 UK-based retailers hold bank debt worth $50bn (£31.6bn) which is due for maturity between now and 2018, with $5bn (£3.2bn) due this year, according to research from law firm Freshfields Bruckhaus Deringer.

Just seven retailers account for more than 63% of the maturing debt.

Value retailer Peacocks collapsed into administration earlier this year due to its crippling debt repayments. Game, which was bought out of administration this month, also struggled with its debt.

Freshfields restructuring partner Adam Gallagher said: “As well as having to contend with difficult trading conditions, retailers are facing the challenge of having to refinance over £6bn this year alone, and having to do so in what is still a stuttering refinancing market where few investors would look to increase their exposure to the retail sector’, he added.

Freshfields high yield partner Gil Strauss said that despite the fact bond markets are thawing that has not filtered through to retail yet.

He said: “To see them play a part in refinancing retail bond maturities, a minimum deal size of £200m and good credit stories will be needed.

“An intrinsic part of any debt refinancing discussion affecting retailers is always their lease exposure. With store rents accounting for a significant majority of a retailer’s fixed cost, negotiating a move from quarterly to monthly rents can make a huge difference to the bottom line, but the evidence we are seeing is that reaching such an outcome is often fraught with difficulties’.

Gallagher said the problem is being exacerbated by banks which hold distressed real estate loans packaging it and selling it on, which is resulting in retailers having to negotiate with investors with whom they have no relationship.  

Freshfields banking partner Sean Lacey said: “Retailers that carry significant debt burdens need to carefully think through the terms of their financing arrangements to pre-empt any default triggers and proactively manage their lenders or bondholders and other third party creditors; for instance credit insurers, to avoid the risk of cover being pulled without due warning.”

Last year the retail sector witnessed 520 administrations, CVA and receiverships, an increase of over 15% on 2010.