Mothercare Share Discussion Threads

[terminated] 10/4/2018 18:37

Yes I've researched what it is but it only needs a cash injection it if is going incur more debt and therefore breach it's renegotiated covenants. If they can persuade them the covenant breach is unlikely to happen again (due to cost savings and due to then not incurring future restructuring costs) then they won't need more cash. They just need to start paying down the debt. Obviously there ate a lot of ifs and buts involved but it's not at all clear they need more cash, and if they do they won't require the full 50m.

[loganair] 10/4/2018 17:07

A CVA is a deal between the company and its creditors; unsecured, trade and tax, to repay them from future profits or a deal may be written to sell assets and pay back creditors from the proceeds.

A CVA can only be proposed if a company is insolvent.

If a company IS INSOLVENT whatever it does from now on it must act to maximize creditors’ interest, that’s the law.

Banks are very keen to get involved and assist where they see a viable company. Often they will want to see how the company will repay the bank’s debts.

The CVA aims to maximize creditors’ interests, preserve viable but distressed businesses, preserve economic activity and save jobs and in time return value to the creditors.

[terminated] 10/4/2018 16:34

Why do you insist shareholders would need to take a hit? They're not investing or restructuring the debt, they are simply allowing the company manouverability so they can pay down the existing debt without incurring more debt. They are not really sacrificing anything, it the lease companies and people made redundant that loose out from the looks of it.No experience with this before but the only time I have known a bank to take a stake is when they do a debt for equity swap. I'm not sure this CVA ususlly involves that.

[dealy] 10/4/2018 14:21

No need to pay off debt. Just need to service it. Company has to get profitable and it should be achievable

[discodave4] 10/4/2018 13:17

CVA - haven't a clue tbh how this will pan out, nobody does!.Trouble is IMO it's just a means to an end and they are just kicking the can down the road- MTC UK will not survive much longer.DD

[loganair] 10/4/2018 12:16

dealy - Depends why a company is borrowing money.

In personal terms borrowing money to buy a house OK - Borrowing money to pay for a holiday or the latest iphone NOT OK.

Borrowing money because a company has a new innovation OK - Borrowing money for a companies day to day running is NOT OK.

[dealy] 10/4/2018 11:44

Whole concept of companies borrowing money needs to be examined. Debt just cripples companies the moment anything goes against plan

[terminated] 10/4/2018 11:27

Loganair: lenders are not in control. If lenders agree to it they have to abide by the terms. The only reason they would agree to it is because it gives them a realistic chance of getting their money back. The CVA basically stops debt rising, especially during a restructuring phase. I mean imagine not having to pay excess leases on store closures and then imagine going to lease holders and basically saying reduce the lease or we leave now and you don't get a cent. Now that's negotiation power. Add to that no redundancy costs and you have a lot of flexibility.Obviously they still need to generate a profit to pay off existing debt but debt shouldn't increase.

[frazboy] 10/4/2018 11:26

Plus, what if they do still need cash following on from the CVA... do the same lenders who taken no equity in the business, but have an agreement on repayments over the course of, say a 3-5 year period, just lend them money again (even if it's just for working capital purposes). Err....

[frazboy] 10/4/2018 11:11

Terminated,

"It does not for example, require an injection of capital resulting in a debt for equity swap"

No it doesn't, but you're assuming that the elixir is merely the closing of the loss making stores, and from that point forwards this company is cash flow neutral at worst - I'm not sure that's the case either.

I think we're all going to learn something from how this unfolds.

[rhambo] 10/4/2018 10:42

It needs its debt covenants waived and is considering a CVA. It most certainly is a disaster, I wonder how you can see it otherwise.

[dealy] 10/4/2018 10:18

It's just not the same level of disaster as we have seen from other companies this year

[loganair] 10/4/2018 09:49

dealy - It seems to me you're the only one who thinks so.

[dealy] 10/4/2018 09:47

I don't think the debt level is onerous. They can trade out of this slump

[dealy] 10/4/2018 09:37

Good summary Frazboy. Nevertheless one aspect is being continually overlooked: namely that trading and margins return to normal