Convenience store giant scrambles to raise fresh capital

McColl’s Retail Group says it still believes it can find a financing solution with its “existing partners and stakeholders” despite enduring torrid trading conditions.

Sky News reported this weekend that McColl’s has only weeks to secure new funding, with millions of pounds of its bank debt being sold to hedge funds and “few obvious options to guarantee its future.”

The Group trades from about 1,100 convenience stores and newsagents, with about 200 of them now trading under the Morrisons Daily format through a partnership with the Bradford-headquartered supermarket giant.

Sky says the supermarket, which was acquired by US PE firm Clayton Dubier & Rice last year, is monitoring the situation with a view to “possibly acquiring hundreds of its stores out of insolvency.”

McColl’s, which employs about 16,000 staff, said it saw a material step-down in footfall due to the surge in Covid-19 cases particularly over the Christmas period, which impacted its trading.

It added that while demand has since picked up, its revenues in the first quarter are behind expectations.

As a result of the difficult market conditions in the first quarter, some of which are expected to continue through the first half, the Board now expects FY22 adjusted EBITDA to be slightly behind current market expectations, and net debt in the region of £100m at the end of FY22.

In a response this morning to media reports that it is racing to secure new funding to stave off a “collapse” the retailer said it remains in ongoing discussions with its lending banks towards a longer-term agreement in relation to the balance of its facility.

It adds: “The Group has received the necessary agreement to roll forward its financial covenant test periodically, and continues to receive credit support from its key commercial partner to enable these discussions.”

The statement also confirmed an approach had been made for the whole business, but that it has “subsequently been withdrawn”.

Sky has reported that EG Group, the petrol stations giant controlled by Asda’s owners the Issa brothers and private equity firm TDR Capital, had held talks with the retailer.

McColl’s statement adds: “In addition, the Group has also received indications of interest for parts of the business.”

This latest news comes less than six months after  McColls completed a placing and open offer, raising net proceeds of £30m. Two-thirds of these net proceeds were raised to accelerate and enhance the Morrisons Daily store rollout in FY21 and FY22.

The group says its Morrisons Daily stores are delivering like-for-like sales growth that is at least 20% better than non-converted, comparable stores, and ahead of the total convenience market. As a result the Morrisons Daily store conversion programme re-started in early February with has opened 18 Morrisons Daily stores opened so far and a further seven to be converted this week.

McColls added it remains on track to complete 450 Morrisons Daily store conversions by the end of FY22.