Mosaic is latest to go down "pre-pack" route

With the news at the weekend (reported in the Sunday Telegraph) that Mosaic

Fashions had debts of more than £400 million, and only three months left within which to arrange refinancing, it is heartening to learn the Mosaic group has gone into administration, with the UK business and assets of Warehouse, Oasis, Coast, Karen Millen, Anoushka G and the overseas shares of Karen Millen acquired in a pre-pack deal by a newly formed group called Aurora Fashions, owned by Kaupthing with a minority stake held by senior management. According to the Draper's report, through the administration the group has been able to streamline its operations putting it in better shape to cope with the economic downturn.

Deloitte, as administrators will continue to trade Principles and Shoe Studio, which are both in discussions with potential buyers. These will also continue to trade as normal pending sales. Former Rubicon diector Peter Davies confirmed at the weekend that he was interested in Principles, and Debenhams is also thought to have held talks. Deloitte are said to be confident that an announcement about sales of these remaining brands will be made in a couple of days.

Given the importance of the Mosaic stable to our high street and the number of jobs that were at risk, Fashionista thinks its great news that a deal has been done and hopes the newly formed Aurora Fashions makes it through what will undoubtedly be a rocky first year of trading.

Pre-packs: now you can have your say

Fashionista has been mulling over the buzz words which have come out of the current economic climate to ensure that she is on top of all the new lingo. Fashionista does, of course, consider herself to be a "recessionista" i.e. a person who is able to remain fabulously stylish during times of economic hardship and is all too aware that her "credit" has been severely "crunched" (if you are unsure of the meaning just check the latest edition of the Oxford Dictionary where the term now appears). There is even a dedicated blog for Recessionistas giving you access to the best bargains in town.

One of the more controversial buzz words, in Fashionista's view, is the term "pre-packs" which has become a staple phrase particularly in the retail sector owing to the large number of "pre-pack" deals which have taken place in this space.

A "pre-pack" is generally a deal where a company is put into administration and its business and assets are then immediately sold under a sale agreement which was negotiated before the administrator was appointed. Recent examples include the sales of Faith, USC and Envy which took place towards the end of last year, all of which were sold by way of a pre-pack transaction.

There are no specific regulations that deal with pre-packs although the insolvency processes and insolvency practitioners are themselves under the regulation of their professional bodies and control of the courts. Fashionista is aware however that the Association of Business Recovery Professionals have recently produced Statement of Insolvency Practice 16 which obliges insolvency practitioners to give substantial information to the unsecured creditors as to why a pre-pack was used. This is however not provided until after the deal has been concluded and accordingly some might say that is a little late to be closing the gate (with the horse being long over the horizon).

Pre-packs can help preserve businesses and jobs, as well as achieving an enhanced value for the assets of an insolvent company, but critics say they allow the old management to walk away from their debts too easily whilst still allowing them to remain involved with the purchaser going forward (like a phoenix from the flames). The mantra of "if at first you don’t succeed, try, try again" does not seem in such circumstances to instil the right level of confidence! Fashionista's view on this is much the same as her view of stonewashed jeans with matching denim jackets- there's a time and a place for them (in the latter case, for cowboy themed fancy dress parties only!).

Interestingly, the Insolvency Service has now invited complaints from anyone who feels unduly disadvantaged by a pre-pack sale so it seems that there is an effort to give pre-packs a much needed image overhaul. Time will tell as to how effective this is.

Baugur's fall from fashion....

As Baugur handed over the keys of its UK headquarters to its administrators, PricewaterhouseCooper this week, Fashionista found it hard to believe that only last year the company was awarded the President of Iceland's award for Export Achievement in recognition of its outstanding contribution to promoting and stimulating Icelandic exports. Contrast this with the recent accusations by Baugur boss Jon Asgeir Johannesson that it is senior political figures who have triggered the demise of the company by pursuing a vendetta against him.

No-one can deny the impact of Baugur on the retail sector, and the UK high street in particular. Companies related to Baugur employ some 50,000 people worldwide in over 3,500 stores with a total turnover of £5.4 billion and its investments include some of the most well known brands in the UK, including Hamleys, Whistles, Jane Norman, Mosaic Fashions and House of Fraser.

Baugur has been hard hit by the banking collapse. It is estimated that Baugur owes the now nationalised Icelandic banks (Landsbanki, Kaupthing and Glitnir) more than £1 billion and under the direction of the new Icelandic government, these banks are now seeking to recover these assets. Baugur and its biggest creditor, Landsbanki, had been holding discussions regarding a potential restructuring of the group until the bank withdrew its support and forced the parent company, BG Holdings, into administration. The bank has now seized control of the company's shares in Iceland supermarkets (14%), House of Fraser (35%), Aurum group of jewellers (including Mappin & Webb and Goldsmiths) (38%) and Hamleys toy store (64%) and Baugur is prevented from selling any assets without the bank's consent.

Baugur has successfully petitioned in Iceland to enter into a moratorium which will allow Baugur a period of review with temporary suspension of payments. This will apply until 4 March and, according to the company's website, will enable the company to facilitate a financial and operational restructuring in co-operation with its creditors in order to protect the interests of shareholders and value of the company's assets.

Even if the retail businesses within Baugur's stable continue to thrive (All Saints for example, had 43% like for like sales for the year to January 2009 and opened new stores in Paris and Antwerp), it is unlikely that the sale of Baugur's investments will realise their full value. Indeed Fashionista has read that banking sources suggest such sales would only raise 10p in the pound for creditors. Landsbanki has, according to Retail Week, recently claimed that it does not intend to immediately sell the shares it now controls, with the focus instead on maximising the long‑term value of the shareholdings.

With Mosaic also in talks with its lenders to secure its future and Shoe Studio and Principles up for sale, Fashionista finds it difficult to predict where some of Baugur's well known brands will end up or how the face of the British high street might change along the way.