Italian lockdown’s retail impact hits hard Maltese fashion franchise

COVID-19 retail shutdown forces Melite Retail Group to request that bondholders agree to a reduction in their bond interest rate

High street fashion franchise Melite Retail Group has reported business disruptions in its main Italian markets due to the COVID-19 pandemic, and is now asking bondholders to reduce their bond interest rate.

The Maltese retail group – owned mainly by the Alf. Mizzi Group and Lidsdale Limited – holds some 25 leases in the north of Italy for retail stores of the globally known Accessorize and Calvin Klein brands.

In 2019, the group issued a €9.25 million bond to finance a restructuring of the group, whose principal activity is the acquisition and sub-leasing of property rights for Italian retail outlets.

But the emergence and spread of the COVID-19 pandemic, which severely impacted Italy and sent the entire country into lockdown, caused serious disruption to Melite’s 25 properties – which had to shut down as retail business ground to a halt.

The company said that the group had been “adversely affected by the developments in recent months, to the extent that it has recently informed Melite Properties of the intention to enter into a restructuring of its business and debts… in terms of Italian law.”

The development has now triggered doubts on the recoverability of the rents due by the group’s Italian sister company, which holds 21 of the group’s 25 leases.

“Management is already in the process of seeking alternative tenants for a number of the properties… in the interim, the continued and regular payment of rents to landlords is imperative to ensure that Melite Properties retains such property rights, the principal asset held by the business.”

Indeed, at a valuation of some €10 million, it is these property rights which constitute the value of the security for the €9.25 million bond issue.

The company has now announced it will carry out a restructuring plan to preserve the majority of its property rights, but that will involve first the rescission of nine out of 25 leases.

Additionally, the shareholders of parent company Melita Retail will advance €1.1 million as part-capital contribution to the company (€630,000) that will be repayable at the option of the company after the 2028 bonds are redeemed; and €470,000 in a non-interest loan, repayable within five years.

The group will also be taking recourse to the COVID Guarantee Scheme offered by the Malta Development Bank, for a €449,000 loan to fund the forthcoming bond interest payments in November 2020.

However, the group also want to ask bondholders to reduce the bond interest rate from 4.85% to 3.5% as from November 2021. This will require holding a bondholders meeting.

Melite’s directors – Andrew and Christian Ganado, Jacqueline Briffa, Alan Frendo Jones, Stanley Portelli and Paul Mercieca – said they had reasonable expectation that the company had adequate resources to continue operating. But the ability of the company to continue as a going concern also depends on winning bondholder approval for the changes in the bond interest rate, as well as any changes to the value of the security underpinning the bond.

Since the lifting of measures such as the forced closure of retail stores in May, stores have gradually reopened. Melite’s directors said they were in constant contact with landlords with a view to safeguarding the company’s property right over the stores it plans on retaining, and that they were in negotiations with third-party tenants with a view to replacing Melite Italia srl as sub-lessee for such stores.

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