House of Fraser bond prices are under pressure as distressed funds circle
The value of publicly traded debt issued by department store House of Fraser has fallen dramatically over the last week prompting fears of financial problems.
Last year, the company issued £175m of bonds on the Luxembourg stock exchange as part of a £300m financial restructuring – the bonds mature in 2020. And the value of the bonds have plummeted from over 90p to 83p in little over seven days.
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The price flop has led to a number of distressed debt investors circling the the business, which is majority owned by Chinese conglomerate Sanpower, according to reports in The Sunday Times. US fund giant Apollo Global Management is understood to be one such fund stalking the firm having bought up pieces of the debt in recent weeks.
House of Fraser floating rate bonds price (maturity 15/09/2020) (Source: Luxembourg stock exchange)
A falling bond price can be indicative of investors attaching a greater degree of risk over whether or not they will get their money back.
Distressed debt investors who buy into the debt at a lower price are often motivated differently to those that have bought the debt at par. Where a par investor would want to like to see the debt paid back in full, a distressed investor may be willing to accept a value that is considerably lower.
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As a private company, unlike its bonds, the shares of the company are not traded on a public exchange and so the movement in debt prices is one indicator of market perceptions of the firm.
The fall in the debt value reflects market anxiety over sales and profits at House of Fraser. The 167 year-old firm is not alone in such facing such concerns with a general market concern over the future of department stores, which are under pressure from online competitors.