Ever since the big private equity firm Sycamore Partners bought the Belk department store operation in 2015 the status of the southeastern chain has been shrouded in mystery, a black hole that invited endless speculation and conjecture…not to mention worry about its suppliers.
Today that riddle was answered just a little bit with the news that the company had reworked its balance sheet by refinancing almost $1 billion in debt and in doing so had passed controlling ownership to two of its lenders. For Sycamore, which has continued to invest in the retail business with major holdings in Ann Taylor, Loft and Staples among other brands, it’s a tidy way out of what appeared to be an ever-deepening financial hole.
Here’s what we know: In what’s described as a “deleveraging,” the company reduced its debt by around $950 million and also secured another $485 million in new credit, secured by new loans and a lien on its customer loyalty program. Whatever other debt still exists has had its repayment deadline pushed out to 2029.
But in what in simpler times was referred to as a “debt-for-equity” swap, two lenders have essentially taken control of Belk although Sycamore seems to be staying on a minority partner.
Now, here’s where it gets a little complicated. The new owners/lenders are referred to in reports as including “funds associated with global investment firm KKR and Hein Park.” We all know private equity firms have layers upon layers upon layers of investment vehicles so “funds associated with” could mean any number of things. What we can probably safely assume is that these two big money players are calling the shots at Belk now.
KKR might be the best known private equity firm – started back when they were still called vulture capitalists and takeover artists – that may still be best known for its run at RJR Nabisco in 1988 that was the biggest deal of its kind at the time. KKR has gotten somewhat more respectable and has holdings in all sorts of industries although it seems to currently have very little in the retail sector.
Hein Park Capital might be more of an unknown. Its LinkedIn profile describes it as “an investment management firm focused on distressed debt/credit,” but, curiously, its website is absolutely blank beyond the company name, address, phone number and email address for investor relations on its landing page. Its LinkedIn profile says it was founded in 2019, is based in New York City and has “11-50” employees.
Whalewisdom.com – which seems to be about exactly what its name says – reported that Hein Park is a “hedge fund with 4 clients and discretionary assets under management (AUM) of $2,304,131,000.” It said its largest holding is Diebold Nixdorf Inc., a financial services technology provider. A cursory search didn’t turn up any other holdings in the retail field.
What’s next for Belk? Obviously, it should have a somewhat better financial balance sheet with a lot of its debt coming off its books. That’s encouraging for its vendors who have had difficulty getting credit insurance for their orders and have been keeping a very tight rein on their accounts payables. Interestingly, some suppliers have said Belk has been paying on-time and without a lot of drama these days.
On Wednesday morning (July 24) Belk executives held a quick online call with at least some suppliers to explain the details of this new transaction but one vendor said they didn’t go much beyond the company’s statement announcing the news. With about 300 stores in 16 Southeastern states Belk is one of the last remaining department store-format retailers in the country and is a key player for both shoppers and suppliers.
Certainly, this news has to offer some encouragement for both groups who have been concerned with Sycamore’s long-term commitment to continuing to keep Belk in business. In its statement on the news, company CEO Don Hendricks said “Today’s announcement marks a pivotal milestone for Belk as we move into the future with a capital structure that positions our business for sustainable, long-term growth and profitability. We are confident that our stronger balance sheet will enable us to build on the momentum and growth we’ve seen in recent quarters, better serve our customers and their communities and be an even stronger partner to our vendors.”
But two new private equity firms that now control the company and may take a much more hardline financial stance than Sycamore’s more operational management could cause concerns too.
Belk was founded in 1888 and remained under family ownership for more than a century right through to the 2015 sale to Sycamore. This latest change in ownership represents hope that it will continue but also potential signs otherwise. Retailing has proven to be a particularly tricky business for private equity firms to get right.
WarrensReport 