A number of hedge funds are closing in on a takeover of Britain’s biggest rent-to-own retailer, BrightHouse, just days after it was hit with a £15m compensation bill by the City watchdog.
Reporters have discovered that the bondholders of BrightHouse have scheduled an informal deadline of November 6 to strike an agreement to restructure its balance sheet.
While sticking to that timetable may not be possible, their move emphasizes the growing possibility of a change of control at the high street business, which rents household appliances such as televisions, and refrigerators at its nationwide network of almost 300 outlets.
The company has been through a difficult period, with growing losses resulting from increasing regulatory scrutiny.
Last week, the Financial Conduct Authority (FCA) required it to repay almost 250,000 customers for failing to act as a “responsible lender.”
Over 80,000 people had not been properly evaluated by BrightHouse for their capacity to repay their loans, which accumulate interest at such a rate that the cheapest washing machine that is available to customers ended up costing them more than £1,000.
The authorisation of the FCA will be required before the change of control at BrightHouse can occur.
Nevertheless, the bondholders of the company believe that a recovery is possible.
Under their plans, which are managed by Alteri Investors – a part of Apollo Management which holds approximately 30% of the bonds of the company- the consortium of investors would exchange around half of its current £220m of debt for equity.
The excess of the existing debt, which is set to mature next May, would remain on the balance sheet of BrightHouse.
According to sources, Alteri has reached an agreement in principle with the other major bondholders, which include HSBC, Oceanwood Capital Management, and Highbridge Capital Management.
The sources added that the bondholders had presented an outline of their proposals to the board of BrightHouse and to the private equity firm which is its current majority shareholder, Vision Capital.
While a deal will not be struck formally with Vision or BrightHouse by the start of next week, the hedge funds are positive of reaching a future agreement with them.
Sources hinted that “formal talks” were not yet initiated between the different stakeholders.
Vision is expected to rise from a restructuring deal with, at most, a sliver of the shares of BrightHouse.
On Monday, advisers to BrightHouse started a formal sale process for the struggling company by reaching out to prospective buyers, even though few observers expect anyone other than Brighthouse’s bondholders to gain control of the company.
Brighthouse is not the only rent-to-own retailer to have sailed into trouble.
Another large player in the market called Buy As You View collapsed into administration in September.
Last month, BrightHouse’s chief executive, Hamish Paton, said that his team was “making progress in returning the business to growth.”
BrightHouse declined to comment.
PJT Partners is advising the majority of the bondholders.