Debt investors in troubled Focus DIY are keen to proceed with a debt for equity swap that could gain them control of the business, according to sources in the distressed debt market. Potential restructuring advisers have been circling Focus in anticipation of its private equity bakers Apax and Duke Street appointing a team to the DIY retailer.
Goldman Sachs distressed debt business and hedge fund Och-Ziff are already thought to have invested in Focus bonds.
In September Focus produced third-quarter results highlighted the liquidity problems that are almost certain to see the company breach its covenants in the coming months.
While turnover and cost of sales are almost exactly the same as last year’s comparable quarter – yielding identical gross profits of £55.9m – the year-to-date figures paint a far more concerning picture. For the three quarters ending July 30, the company’s Ebitda weighed in at £25.4m, compared with £31.5m for the same period last year.
That explains the low value inherent in Focus’s bonds, which have been trading at a big discount. The covenant waivers on the senior facilities expire in April 2007, and the reset is conditional on full-year Ebitda of £46m being met. For some time, this target has appeared unachievable, especially as the DIY sector experiences a post summer downturn.
Cashflow is also a concern, showing a £13.1m decrease for the year-to-date, compared with a £23.4m increase for the same period last year. Focus’s cash balance stood at £14.4m on July 30, down on the £23.5m for the comparable period.