House of Fraser investment group files for bankruptcy protection
Fears for the future of a major investor in the UK high street were mounting today after talks with banks over its £1 billion debt burden collapsed.
Icelandic group Baugur, which has stakes in retailers such as Hamleys and House of Fraser, has applied to enter the "moratorium" process in Reykjavik - which offers protection from creditors in a similar fashion to Chapter 11 bankruptcy procedures in the US.
The struggling group has an initial three weeks to find a way forward but its current woes could mean a fire-sale of its UK retail assets.
Retail expert Nick Bubb, an analyst at Pali International, said today's announcement was likely to see large swathes of the high street change ownership as Baugur is forced to stump up cash to repay its bank debts.
"Baugur has no choice - it has to repay the banks and they are driving it," he said. "There should be enough interest in most of its chains to attract buyers, perhaps from private equity firms," he added.
The company said it had taken the action "in order to protect the group's assets as well as the interests of all creditors".
"The board of the company unanimously resolved to take this action following yesterday's decision by Landsbanki to discontinue discussions regarding a potential restructuring of the group," it said.
The company's investments are exposed to a weakening UK high street and its problems were compounded by the crisis which saw the nationalisation of Iceland's major banks last October.
Baugur has majority stakes in fashion chain Whistles and toy store Hamleys as well as minority shares in a host of others.
It owns 34% of House of Fraser, 14% of Iceland and 36% of fashion label All Saints.
The firm's interests also include other names including Coast, Karen Millen, Oasis, Principles, Warehouse and Shoe Studio, as well as equity stakes in other listed retailers such as French Connection and department store chain Debenhams.
These UK investments are owned by BG Holding, which has also applied for moratorium protection alongside the main group.
Baugur employs around 55,000 people in the UK but sources close to the firm said operations would be unaffected by the move, although its shareholdings could be sold off.#
House of Fraser said the board sympathised with Baugur's plight but added that the firm was a minority shareholder "with no impact on the strength of the business, or its day-to-day operations".
Chairman Don McCarthy said: "This is sad news. However, we can only continue to emphasise that the difficulties that Baugur faces do not affect House of Fraser's trading or banking position. It is business as usual."
A spokeswoman for Mosaic Fashions, the owner of brands including Karen Millen, Coast and Oasis in which Baugur has a 49% stake, said the move "will in no way affect the future strength of the group or the operations of the business".
Mosaic Fashions is funded by fellow Icelandic bank Kaupthing. Discussions over long-term funding from Kaupthing are "progressing satisfactorily", the group added.
A spokesman for the Landsbanki Resolution Committee - appointed to run the bank by the Icelandic regulator following its nationalisation - said: "Our discussions with the Baugur Group did not produce any acceptable proposals, so we have taken steps to protect these valuable assets.
"We intend to work with management of the companies to maximise the long-term value for all stakeholders. This move is designed to preserve the stability and protect the value of the companies concerned."
Landsbanki yesterday filed a petition to place BG Holding into administration, nominating PricewaterhouseCoopers' Tony Lomas and Zelf Hussain as joint administrators.
Mr Lomas is also overseeing the high-profile administration of the UK arm of failed US investment bank Lehman Brothers.