US hedge funds are intending to take control of Brighthouse as a plan of a financial restructuring of the massively indebted hire-purchase electricals company.
It is noted that a consortium of bondholders led by Wall Street investment giant Apollo have estimated that Brighthouse will be incapable of meeting its next debt repayments after an administrative crackdown ravaged profits.
A debt-for-equity trade would see lenders take control and Brighthouse’s private-equity owner, Vision Capital, kicked out. It acquired the company for almost £250m a decade ago. The organization would also begin debt-free.
Brighthouse’s difficulties have risen quickly following new regulatory standards. The Financial Conduct Authority began an in-depth examination of the controversial rent-to-own industry amid worries that clients were taking on debts with very high interest rates they could not manage. Lucrative late payment charges also came under investigation from the FCA.
Customers take out weekly installment plans on household items such as microwaves and sofas at annual interest rates (APRs) of up to a massive 69.9 percent.
There were initially concerns that new laws could put the group out of business. However, Brighthouse was able to limp off after a pardon. The City watchdog said it was “minded to” grant the company a consumer credit license.
But it has still imposed stringent new checks on customers’ financial standing and the harder criteria, which take longer for shops to apply, have made an abrupt drop in sales and profits.
In the year to the end of March, its sales dropped 13.7 percent to £320m as a growing number of potential customers were excluded for credit. Hamish Paton, the chief executive, revealed the year had been “very tough.”
A successful coup will indicate the end of a remarkable fall from grace for Brighthouse. Just three years ago, Vision Capital was adjusting the chain for a possible stock market float. A heavyweight committee led by Henry Staunton, chairman of WH Smith, was selected to prepare for the listing.
It is known that Vision has tried to maintain control of the business by coupling up with Apollo and tabling a restructuring program of its own. The pair offered to add fresh funds and give a slice of the equity to other bondholders, but the plan was ultimately denied. City sources warned that if Apollo doesn’t like the latest restructuring, it owns 25 percent of the bonds, therefore would be prepared to block any deal.
Brighthouse refused to comment on the issue.