Private equity firms circle Baugur debt

TPG, Alchemy Partners and Permira have all been linked with a possible deal for debt related to Icelandic investor Baugur’s UK retail investments, which include House of Fraser, Debenhams and the iconic toy store, Hamleys.

A range of private equity firms have put themselves in the frame for a deal to acquire Icelandic investor Baugur’s $1 billion debt pile. The debt, which is owed to the now-nationalised Icelandic banks of Kaupthing, Landsbank and Glitnir, would represent significant stakes in Baugur’s large UK retail portfolio.

Reports in the UK press have linked TPG, Alchemy Partners and Permira to the company’s debt. Jón Ásgeir Jóhannesson, executive chairman of Baugur, has acknowledged that his company is so leveraged that “the person that owns the debt controls the company”.

Hamleys: fair game

TPG, Alchemy and Permira declined to comment on the deal, although sources close to the situation confirmed that they were all in the frame for the deal. One source suggested that links to individual firms were likely to be “overstated” as “everyone” in the industry would be looking at the deal.

In July, a report by property services firm Colliers CRE predicted rents for UK high street property could fall between 15 and 20 percent over the next three years. The sector, the firm went on to say, was expected to see some of its worst total returns since 1981, when the industry benchmark, the Investment Property Databank (IPD), first began publishing property data.

In the US, private equity firms such as Apollo Global Management and Lubert-Adler Real Estate, Cerberus Capital Management and Sun Capital Partners have seen retail investments go bankrupt. The Apollo-controlled houseware company, Linens n' Things, will reportedly begin liquidating its remaining stores this week after failing to find a buyer to take the company out of bankruptcy proceedings. 

Meanwhile Lubert-Adler, Sun and Cerberus have been named as defendants by California-based department store, Mervyns, for allegedly “siphon[ing]” valuable real estate assets away from the company to leverage its buyout, eventually forcing it into bankruptcy. The private equity and real estate firms contest the charges saying they will vigourously defend themselves.

Earlier this week Baugur denied reports suggesting they had called in administrators. The firm faces collapse after the Icelandic government took three of the country’s biggest banks into state hands and froze Baugur’s accounts. Baugur's portfolio includes department stores House of Fraser and Debenhams and iconic toy shop Hamleys, on London's Regent Street.

The private equity bidders join British retail magnate Sir Phillip Green, who has already been in talks with the Icelandic Government. Green owns British retail group Arcadia and department store chain BHS.