LetterOne nears Holland & Barrett debt deal

LetterOne, the UK-based investment group founded by sanctions-hit Russian oligarchs, is nearing a deal with lenders behind Holland & Barrett to buy out the £890mn debt used to acquire the high street healthcare retailer.

People close to several large lenders to Holland & Barrett have told the Financial Times that they were preparing to exit following an unusual offer made by LetterOne to buy them out.

Bankers said the offer looked generous given it was pitched at above the price at which the debt had recently traded.

Some also said they wanted an exit from a potentially toxic situation, given ongoing concerns over the links to Russia as well as the future of British retailing in light of a possible recession.

LetterOne, which has not been subject to sanctions, has moved to cut ties with its Russian owners, including sanctioned oligarchs Mikhail Fridman and Petr Aven, separating their shareholdings and freezing their management rights.

The high participation of lenders so far makes the deal likely to proceed, according to several people close to the deal, although first round offers only conclude on Friday night, so there remains no certainty yet over the outcome.

If agreed, the deal would resolve questions over one of the largest looming debt maturities in the UK corporate market.

Holland & Barrett was bought by LetterOne for £1.7bn in 2017. It now operates about 800 stores in the UK, and close to 1,600 across 19 countries that employ 8,000 staff.

“It’s a stonking offer,” said one of Holland & Barrett’s lenders, adding that holders of the loan would be foolish not to “take it and run away”.

He added that while there could always be issues with the money clearing because of sanctions-related compliance, lenders last month received an interest payment on time without any glitches.

LetterOne said it “expected a very strong participation at the bottom end of the price range”.

In a letter to its creditors sent last month, LetterOne said that it wanted to offer the option to cash in their holdings rather than wait until the maturity of the facilities.

It flagged “concerns expressed by lenders regarding the performance of H&B, the sanctions landscape, the increasingly challenging consumer retail business environment and, additionally, the significant operational and business changes H&B requires to improve its performance trajectory on a long-term basis”.

LetterOne said at the time that it was “time to focus on a great business that provides vital jobs and improves communities’ health and wellbeing”.

The offer has been made at about between 75 and 80 per cent of the loans’ original value. Each lender needs to submit its preferred price in a “Dutch auction” process, with LetterOne committed to paying whichever offer is lowest for all the debt it needs to take control.

The deal needs just over two-thirds of the lenders to agree on its terms, with the remainder of the loan holders potentially facing being trapped if they do not take the offer. This has caused an additional “prisoner’s dilemma”, according to people close to the lenders, given no debt investors would want to be left stuck holding loans.