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.

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.

The Icelandic effect shows no signs of thawing

Fashionista has been pondering how the fate of one retailer in particular could change the face of the UK high street more dramatically than any other. As is evident from the recent administrations of a number of Icelandic backed retailers, including Blooming Marvellous, Hardy Amies and Ghost (all owned by Icelandic investor Arev) and from reports that Icelandic fund Kcaj (which owns Jones the Bootmaker, Mountain Warehouse and Aspinalls of London) is also facing administration, those retailers with an Icelandic connection seem to be struggling to find the cash they need to push them through the current challenging trading conditions.

So given this background Mosaic Fashions, which owns the Warehouse, Coast, Shoe Studio, Oasis, Karen Millen and Principles brands, amongst others, and is part-owned by Icelandic bank Kaupthing and Icelandic investor Baugur (also backed by Kaupthing), surely has cause for concern. Recent reports of lower sales and falling profits within the group, not to mention the fact that the group has called in an emergency restructuring team from Deloitte, also indicate that the Icelandic effect may be about to strike at the heart of the UK high street yet again.

Due to its Icelandic connections, the group has been squeezed considerably over the past few months by the withdrawal of credit insurance and reports that suppliers are only prepared to supply stock to Mosaic stores on a cash on delivery basis. In addition, the collapse of Kaupthing has meant Mosaic has lost its key foreign exchange hedge which diluted its profits this year and is likely to have an even more dramatic impact next year.

On the bright side, Mosaic has managed to persuade 85% of its landlords to accept monthly (rather than quarterly) rents, and is in talks with lenders to secure additional working capital. It has also been granted a waiver on interest payments in relation to the £400m debt it owes to Kaupthing. Fashionista worries about the effect it may have on the business if it has to resume payment of those interest payments.

Clearly Fashionista is concerned about the possibility of losing some of her favourite high street brands, but also worries about the impact that this could have on the larger department stores such as Debenhams and House of Fraser, where Mosaic concessions make up a large part of their fashion offering. Despite the doom and gloom, Mosaic says its sales remain above £1bn a year and there is no risk of administration. Fashionista hopes that this is the case -- but only time will tell.