Receiver appointed to Superquinn

[Statler]

The purchase by Select Retail was a Propco/ Opco structure, essentially it was a property play and the supermarket business was secondary. Same story as so many others, too much debt to fund too high a purchase price for property on the assumption it could be re-developed and the market would continue to rise. Some of the names involved will be familiar: [broken link removed]

The supermarket business should be viable without the property component (Musgrave obviously think so) and for the sake of 2,800 jobs and the continuance of a competitor that stocks a reasonable proportion of Irish produce, I hope that is correct.

 

[onq]

I presume the buyer won't take on the debt. The banks will take the write off, and the taxpayer will kindly cover this. The new buyers will get a good business at a bargain price, thanks to the taxpayer.

Okay, okay. I get it. NOW i see why you're called "Complainer". LOL!

Look - what would the fallout have been otherwise?
All this "softness" towards business is to limit the fallout overall.

There is a bigger picture, as I had to learn about when I advocated that the banks should be let go to the wall initially.

I thought this level of understanding had percolated everywhere on AAM by now?

ONQ.

 

[onq]

@ Statler, thanks for that link.

The stats show its a business that's surviving as opposed to prospering

Look at the market share, sales figures and profit taking from the above link -

"The Musgrave Group had sales of €4.4 billion in 2010 and profits of €72 million. Its franchises have more than 20 per cent of the national grocery market."

That's a profit of 1.64% on 4.4 BILLION(!) turnover.

Unless profits were almost entirely gobbled up by loan repayments on property, that's not very healthy.

I haven't looked at their figures but I suspect there was a downward trend in their year-on-year that couldn't easily be turned around.

While its a credit that they were able to trade profitably in a difficult trading environment, this was a confirmation that something needed to be done quickly.

ONQ.

 

[Firefly]

Hi ONQ,

On the face og it I agree but markup and margin in retail are extremely low. They depend on big volume. You'd also need to go through the accounts as perhaps large payments are made to the Musgrave family/ other shareholders.

F.

 

[Complainer]

Hi Complainer

Has anyone raised corporate debt forgiveness in this thread?

You cover it nicely yourself when you say

If the company is in deficit, it will go into liquidation.

That's the debt forgiveness, as the debt is liquidated with the company. If the owners have given personal guarantees, they are probably meaningless now, if the individuals are bankrupted or NAMA'd.

This is a prepack recievership. The Musgrave offer/acceptance didn't arise since the recievership was announced. It has obviously been in the pipeline for some time. Given that the main problem of the business is generally recognised as being the property debt, it is a fair bet that the main purpose of the recievership is to wipe out most/all of that debt.

 

[Brendan Burgess]

Hi Complainer

"if the individuals are bankrupted"

Surely that says it all. This is not about debt forgiveness, as I understand the term. If I say to my creditors, "sorry, I am insolvent" and they bankrupt me, I don't consider that debt forgiveness.

If I owe €400k on a house worth €300k and the lender writes down the loan to €300k while leaving me with ownership of the house that is debt forgiveness (which I am opposed to). If they repossess the house and write off the €100k shortfall after 3 years of debt settlement, that is an alternative to bankruptcy which I would call debt settlement and which I support.

If NAMA or the banks involved in Superquinn wrote down their loans from €400m to €200m , I would consider that debt forgiveness. But putting a company into receivership or a person into bankruptcy is not debt forgiveness.

It is an interesting point about the prepack receivership. This is a UK term - I don't think we use it in Ireland. I think it usually means that the beneficial ownership retain beneficial ownership. That does not seem to be happening in this case.

The banks could have simply appointed a receiver who would have sold off the stock in a firesale and let the staff go while looking for a buyer for the properties. That would not have been in anyone's interests.

I suspect that they had discussions with all concerned beforehand to keep the retailing business going. It seems to me to be a good thing.

We also have the Administration facility in Ireland whereby an Administrator could have been appointed and would have to get the court's approval for a scheme of arrangement. Not sure why this wasn't done. I suspect that the loans were secured on the properties so an administration might not have worked.

All in all, this looks like a good result for a failing business.

The investors and beneficial owners have lost everything.
The suppliers will probably have to write off their debts but they would have lost everything anyway.
The Receiver got the maximum price for the assets by selling it as a going concern.
The employees kept their jobs
The business keeps going
The banks will face a loss on their loans, but probably less than they would have faced if the business was not sold as a going concern.

 

[Complainer]

Surely that says it all. This is not about debt forgiveness, as I understand the term. If I say to my creditors, "sorry, I am insolvent" and they bankrupt me, I don't consider that debt forgiveness.

If I owe €400k on a house worth €300k and the lender writes down the loan to €300k while leaving me with ownership of the house that is debt forgiveness (which I am opposed to). If they repossess the house and write off the €100k shortfall after 3 years of debt settlement, that is an alternative to bankruptcy which I would call debt settlement and which I support.

If NAMA or the banks involved in Superquinn wrote down their loans from €400m to €200m , I would consider that debt forgiveness. But putting a company into receivership or a person into bankruptcy is not debt forgiveness.

I guess the difference between the personal property/mortgage situation and the business situation is down to the ongoing value of the business (goodwill is the accounting term, I think) and the history of what happened here.

The history of course is that this was a leveraged buyout, where some property developers borrowed large amounts of money from banks to buy the business, and then dumped that debt back onto the business itself. This crippled the business, and the prepack recievership is arranged to allow the business to walk away from the debt. The broader banking history means that the State (in the form of the banks) is left to absorb the debt.

The new buyer will get to buy at a bargain price, as no time is given for open pricing on the market. They walk away with a debt-free bargain and the State picks up the tab.

It is an interesting point about the prepack receivership. This is a UK term - I don't think we use it in Ireland. I think it usually means that the beneficial ownership retain beneficial ownership. That does not seem to be happening in this case.

It appears that in prepack recieverships, it is sometimes the same individuals who buy out the old business, leaving their historical debts behind, but this is not always the case. See http://en.wikipedia.org/wiki/Administration_(law)#Pre-pack_administration

The banks could have simply appointed a receiver who would have sold off the stock in a firesale and let the staff go while looking for a buyer for the properties. That would not have been in anyone's interests.

I suspect that they had discussions with all concerned beforehand to keep the retailing business going. It seems to me to be a good thing.

I'm certainly not suggesting that it would be better to close down the business.

We also have the Administration facility in Ireland whereby an Administrator could have been appointed and would have to get the court's approval for a scheme of arrangement. Not sure why this wasn't done. I suspect that the loans were secured on the properties so an administration might not have worked.

If the loans were secured on the properties, wouldn't this security hold through the recievership, i.e. those debts would still have to be cleared, or the new entity couldn't take ownership of the properties?

 

[Purple]

Complainer, we don't know the details of what was or wasn't written off. You are jumping the gun here.

 

[Sunny]

The new buyer will get to buy at a bargain price, as no time is given for open pricing on the market. They walk away with a debt-free bargain and the State picks up the tab.

I don't know the ins and outs of the deal but it sounds like this was the best deal for everyone involved. We don't know what the banks are left with. I can't imagine they agreed to write down €400m euro of debt for a fraction of the amount owed. Especially since there are non-nama banks involved and you would have to consider these to be very aggressive in recovering value.

 

[Shawady]

Does Superquinn own it's own sites?
I know the one near me is in a prime location.

 

[JoeB]

What about the timing?

The receiver was appointed yesterday, and the receiver has sold the company today.

How has he had time to do due diligence on getting the best price? Surely the big companies., like Walmart or whatever can't have had time to put in a detailed bid in less than 24 hours.


So it appears, to me at least, that the receiver sold the company to the first bidder.. that would seem to be at odds with the requirement that he sells for the best price.


It appears as if Superquinn was not offered on the open international market... as that can't have been done in less than 24 hours. So what happens if in the future a firm claims that they would have made a better offer than the one which was accepted in lightning time?

 

[Sunny]

Superquinn has been on the market unofficially for months. I would imagne Musgraves was the only/highest bid.

 

[Complainer]

I don't know the ins and outs of the deal but it sounds like this was the best deal for everyone involved. We don't know what the banks are left with. I can't imagine they agreed to write down €400m euro of debt for a fraction of the amount owed. Especially since there are non-nama banks involved and you would have to consider these to be very aggressive in recovering value.

True - we don't know what happened. However, there is every indication that the purpose of the recievership is to allow the new buyer to leave behind some or all of the property debt.

What about the timing?

The receiver was appointed yesterday, and the receiver has sold the company today.

How has he had time to do due diligence on getting the best price? Surely the big companies., like Walmart or whatever can't have had time to put in a detailed bid in less than 24 hours.


So it appears, to me at least, that the receiver sold the company to the first bidder.. that would seem to be at odds with the requirement that he sells for the best price.


It appears as if Superquinn was not offered on the open international market... as that can't have been done in less than 24 hours. So what happens if in the future a firm claims that they would have made a better offer than the one which was accepted in lightning time?

Very true.

Superquinn has been on the market unofficially for months. I would imagne Musgraves was the only/highest bid.

But 'on the market' for an open sale by owners is very very different to 'on the market' for a sale by a reciever.

Why the rush?

 

[Brendan Burgess]

True - we don't know what happened. However, there is every indication that the purpose of the recievership is to allow the new buyer to leave behind some or all of the property debt.

Complainer

I really don't think you get it at all on this one.

Let me give you another example. You see a house for sale for €200k and you put in a bid for €180k and you buy it for €190k. You pay the solicitor and you get the keys to your new house.

You later discover, that there was a mortgage on the house of €500k. Should you be accused of "leaving behind some or all of the property debt"?

The new buyers bought assets not debts. The owners of those debts, the banks were delighted to have a buyer.

Brendan

 

[JoeB]

OK, say Superquinn owes 400 million, but is only worth 200 million itself. So superquinn can be sold, for the 200m, and that is paid off the 400m owing.

Shouldn't the new owners have to pay the outstanding 200m? If not why not? And if it's the bank who chooses to write off the 200m, then the bank should take the hit.. if this is a taxpayer owned bank then this shouldn't be allowed., as private individuals benefit from taxpayer money.

The old owners of SuperQuinn get nothing, (the 200m sale price went straight to the bank), but nor are they chased for the outstanding 200m... but that's ok I suppose, as Superquinn is likely a legal entity in its own right.

But the Superquinn brand should be bankrupted... as it owes 200m.



We need to force banks to take their own losses,... has anything been done to allow that to happen,.. or is it still a case of 'welll, we're systemic, bail us out after our own appalling decisions'.. such a moral hazard, which we're doing nothing to prevent. The new system, two pillar banks, after our old system, three pillar banks, didn't work.


We need a sinlge, government bank, to take on all the systemic functions, and let private banks fail. Or else the international markets (ie bondholders of various countries), should be forced to insure national banks against systemic failure... by being the first to take haircuts, .. before any taxpayer is hit.

 

[orka]

OK, say Superquinn owes 400 million, but is only worth 200 million itself. So superquinn can be sold, for the 200m, and that is paid off the 400m owing.

Shouldn't the new owners have to pay the outstanding 200m? If not why not?

Because they bought and paid for something worth 200M. Similarly to Brendan's post previously, reword your post as a house sale:

"OK, say JoeB owes 400k on his house, but the house is only worth 200k itself. So the house can be sold, for the 200k, and that is paid off the 400k owing.

Shouldn't the new owners have to pay the outstanding 200k? If not why not? " - doesn't really make sense does it?

It is the old owners who have to take the hit, not the new owners. And the old owners should be vigorously pursued by the banks for the shortfall.

 

[JoeB]

Using the house example.. the house doesn't owe any money, the owners of the house do.


In Superquinns case, Superquinn itself owes the money. (not Superquinns owner)

So that's the same as a house owing money.. and if a house owed 400K, it wouldn't be allowed to sell itself for 200K, and owe nothing.



If Superquinn owes 400m then that 400m debt should be sold with the company... allowing the company to seperate its debts from its assets is the problem. (In the house example, the owner owes the money, not the house, that's the distinction)


It seems that Superquinn, which owes 400m and has 200m of assets, is selectively selling the assets, and not selling the debt.

I feel Superquinn should only be allowed sell itself, if the debts are also sold, and the new owners are liable for the existing debts.


I don't think football clubs can sell themselves and get rid of debt this way.. the debt is still owed by the club, and hence by the new owners.

 

[JoeB]

Another point... using the house example.


The bank would not allow a 200K house which owes 400K to be sold at all, as they lose out. So why is the bank allowing Superquinn to sell itself, if the bank will definitely lose out?


Banks don't seem to take such a practical approach to house sales... for example, has anyone on AAM got their bank to agree to a sale of a house with 200K negative equity? That's what has happened here with Superquinn. ..



edited to add: I agree that the bank have allowed the SQ sale as there is no hope of getting full payment, . but that equally could be said of struggling home owners.

 

[JoeB]

It's simple, the new owners should be liable for any debts owed by the company they have just bought... why should they be allowed to buy assets only, and not debts?



On the receiver thing.. can the receiver even have examined the SQ books, in detail, in less than 24 hours?. I don't believe he could have,.. not at all. Could he have examined Musgraves bid in detail either?.. no would be my answer to that... how could he?, in less than 24 hours.. the bid was presumabely quite complex.

So I don't get it, not at all. If I was a bidder I wouldn't have had a chance to bid.

 

[orka]

It's simple, the new owners should be liable for any debts owed by the company they have just bought... why should they be allowed to buy assets only, and not debts?

Because no distressed business would ever be sold.

Without a deal like this, if the existing owners can't continue to operate, SQ would have to go belly-up completely, go into administration, stop paying its debtors, causing hardship to employees and suppliers (who I believe are safeguarded in this deal) and then finally months down the road when the brand is irreparably damaged and debtors paid small cents in the euro, buyers can pick over the bones that remain, probably picking it up for 100M. Why is that a better option?