Edcon‚ which was once known as the retail jewel of SA‚ has significantly underperformed its peers since its highly leveraged private equity buyout in 2007 by Bain Capital. Six years on‚ Edcon is still saddled with debt to the tune of about R25bn.
The company‚ which also owns CNA‚ Red Square and Boardmans announced the launch of a tender offer for up to €700m of the outstanding €1.14bn floating-rate bonds due in June 2014.
The group offered €325m of 9.5% senior secured notes denominated in euro and dollars maturing in 2018 to investors.
Edcon will use part of the proceeds from selling its store-card book to Absa for R8.8bn and a R4bn term loan with a syndicate of local and international banks to fund the buyback.
Meanwhile‚ ratings agency Moody's downgraded Edcon's corporate family rating to B3 from B2‚ and its probability of default rating to B3-PD from B2-PD.
The outlook on the ratings is stable‚ Moody's said.
"We have assigned a (P)B3 rating decision to Edcon's senior secured notes in line with the downgrade of its ratings to B3‚ which stems from our assessment that the company's leverage profile has not materially improved over the past year as originally expected‚" Dion Bate‚ a Moody's assistant vice president - analyst and local market analyst for Edcon said.
Earlier this week Edcon said sales for the 13-week period ended December 29 are expected to be between R8.3bn and R8.38bn‚ compared with R8.39bn a year earlier.
The decrease was due to delays in stock delivery and lower cellphone sales in its discount division‚ the discontinuation of its Discom brand‚ and refurbishments and merchandise improvements at its Edgars division. Same-store sales are expected to be lower by 3.4%-3.5%.
Gryphon Asset Management CEO and chief analyst Abri du Plessis said: "This is not a good result. It's proof of the tough retail environment which we've seen from many of the other retailers. For Edcon‚ having problems other than the tougher economic environment‚ it's going to be quite an uphill battle."
Sales in its flagship Edgars chain are expected to be between R4.52bn and R4.56bn for the 13-week period‚ compared with R4.37bn previously‚ and same-store sales are expected to be 2.1%-2.2% lower.
Edcon has spent R65m revamping 72 Edgars stores‚ while beefing up its merchandising processes as it turns its attention to "quick response" modern fashion.
It is also adding more international brands to attract footfall.
The second phase for Edgars includes rolling out "stores-in-store" devoted to international brands such as Topshop. Total investment for this phase is about R300m.
Local players such as Truworths (TRU)‚ Woolworths (WHL) and The Foschini Group (TFG) have streamlined their fashion supply chain in the face of heightened competition from global players such as Zara‚ which are expanding into SA.
There is speculation that Edcon will return to the JSE‚ and analysts believe its transitional projects are part of the listing process.
In January‚ the struggling retailer announced the appointment of a heavyweight team of former top executives as independent nonexecutive directors.
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