Matalan, the popular discount clothing chain, is in talks with lenders Barclays and Lloyds to secure a £50 million cash injection in order to navigate the post-Covid-19 landscape. John Hargreaves, the owner and chairman of Matalan, is also seeking a government-backed loan to support the business during this ongoing crisis. However, there is some debate as the company has already placed more than 11,000 employees on the government’s Job Retention Scheme, leading to questions about whether it should be eligible for further state-backed funding.
Due to the closure of all 232 of its UK stores, Matalan has taken measures such as deferring rent payments and only paying suppliers 70% of their invoices for the months of April, May, June, and July. These actions have been necessary as the impact of the coronavirus pandemic has significantly affected the company’s sales, despite reporting pre-tax profits of £30 million on sales of £1.1 billion in the year leading up to February 2019. With its credit facilities fully utilized, Matalan is at risk of running out of money by the summer if it does not receive the much-needed cash injection.
Sources familiar with the matter have indicated that the banks would only consider providing a loan if they are given priority for repayment in the case of Matalan going bankrupt. This stipulation would require approval from bondholders, who have enlisted the assistance of advisers from investment bank Perella Weinberg and law firm Kirkland & Ellis. Matalan currently holds £480 million worth of bonds, with £350 million set to mature in 2023 and £130 million maturing in 2024. Experts predict that a restructuring of the company’s balance sheet is inevitable, with options such as a debt-for-equity swap or pre-pack administration being considered.
Despite the various challenges it faces, Matalan is actively preparing for the reopening of its stores. The company believes that its large out-of-town stores could provide an advantage over its high street competitors, as it can potentially operate in a Covid-19-compliant manner. Store sales are vital for Matalan, accounting for up to 85% of its annual revenues. If the company’s financial future can be secured, it has the potential to thrive in these difficult times due to its low prices and customer appeal.