Cruise ship retailer deploys CVA on the high seas

An insolvency procedure widely used on the high street has spread to the high seas as Harding Retail, which operates boutiques on cruise ships, has resorted to a company voluntary arrangement to cut its debt.

Harding, which was founded in 1930, has had no revenue for 10 months after the US government effectively shut down the $150bn cruise industry by issuing a no-sail order in March last year. It operates 250 boutiques on more than 80 vessels.

The company has appointed KPMG to implement a company voluntary arrangement, a form of insolvency that imposes losses on some creditors after a vote among all unsecured creditors.

In retail CVAs, landlords are typically asked to agree to store closures or lower rents while other creditors, such as tax authorities, employees and suppliers, are left relatively unscathed.

But according to those familiar with its proposal, Harding is mostly asking suppliers to accept reduced amounts in settlement of unpaid invoices. It is suggesting an upfront payment alongside a mechanism for creditors to recover up to four-fifths of their arrears, depending on its future financial performance.

Harding declined to comment on the process. But insolvency experts said this kind of CVA could become more widespread among companies in leisure sectors, which often have arrears in respect of inventory that may no longer be sellable after months of enforced closure.

Neil Gostelow, a partner at KPMG, said a significant number of businesses could face severe squeezes on working capital because of “losses incurred during shutdown, the costs associated with restarting operations, and repaying creditors that were due at the start of the crisis”.

“Many will need to go through some form of restructuring process which requires the support of wider stakeholders,” he predicted.

Harding sells mostly high-end fashion items, jewellery, watches, perfume and alcohol, meaning that many of its creditors are ultimately owned by global conglomerates.

The nature of its stores means that usually significant stakeholders such as landlords, local authorities and HMRC are either not present, or have only small claims.

The cruise lines themselves generally take a percentage of sales from on-board concessions rather than charging a fixed rent, and have been accommodating of the company’s position.

Most of Harding’s shop staff are employed on short-term contracts that reflect the inherent seasonality of the industry.

Harding was bought by US hedge fund Davidson Kempner Capital Management in October. A division of the group, which owns Oak Furnitureland and has recently been linked to insolvent UK retail chains Topshop and Peacocks, was the principal lender to the company.

Harding is the second-biggest player in the on-board market after Starboard, a division of French luxury conglomerate LVMH. In 2018, the last year for which accounts are available, the Bristol-based company made profits of £600,000 on sales of £170m.

The cruise industry has been severely affected by the coronavirus pandemic, with hundreds of vessels lying at anchor around the world and revenues at the main players wiped out.

However, its typically older customers are among the first cohorts to be vaccinated against Covid-19 in many countries. That has raised hopes that the industry may be able to restart later this year, although capacity and sailings are likely to be reduced and the logistics of preparing vessels for service are daunting.

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