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Consumer credit crackdown sparks Shop Direct debt sell-off

Published on: May 17th, 2018

Shop Direct has left City investors £55m out of pocket after fears of a consumer credit crackdown triggered a sell-off in the company’s debt.

Lenders to the Littlewoods and Very owner, controlled by the billionaire Barclay brothers, have seen the value of their investments slump 15% since the start of the year due to a looming Financial Conduct Authority overhaul of high borrowing rates for shoppers.

Analysts fear the FCA review, due for release in the next fortnight, could damage Shop Direct’s lucrative lending business, which allows shoppers to buy clothes and furniture on store credit.

A slowdown in consumer spending, has also taken its toll on the privately owned company, which has seen borrowing costs rise to one of the highest in Europe.

“This thing is at the centre of a perfect storm,” a leading Shop Direct bondholder said. “It straddles two of the most troubled sectors — retail and consumer credit.”

The slump will increase pressure on new chief executive Henry Birch, the former Rank and William Hill boss, who took the reins on Monday following the departure of Alex Baldock to Dixons Carphone.

The company, which declined to comment, reported a 3.7% revenue rise last year to £1.9b with underlying profits up 6.6% to £160.4m, and remains cash generative. It is cutting 2000 warehouse jobs and is due to report quarterly trading next week.

The £550m bond debut, orchestrated by Barclays Bank, had a difficult start when a proposed £200m dividend clause for the Barclay brothers — Sir David and Sir Frederick — was ditched at the last minute following investor pushback.

The duo last year scrapped plans to sell Shop Direct for £3b amid a lack of buyer appetite. “The deal struggled from day one, and the pending FCA review is weighing on the bonds,” another Shop Direct bondholder said.

Shop Direct’s bond prices fell initially in March following an investor day at its Liverpool headquarters.

Influential investment bank Credit Suisse then slapped a sell rating on the bonds — which mature in 2022 — because of rising risks from the FCA review. That prompted a further slide.

The yield on the bond, a measure of risk, has risen to almost 12%, putting it ninth in a list of 608 high-yield firms.

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