Insolvency firm FTI Consulting has been preparing to put Mosaic Brands into voluntary administration, sources say.
Its bondholders on Monday agreed to new payment terms on debt owed by the embattled apparel company.
Mosaic Brands told the market on Monday it would focus on brands including Katies, Millers, Rivers and Noni B and exit Crossroads and Autograph.
It has been in safe harbour protection through insolvency firm Deloitte as it fights for survival amid tough economic conditions. Mosaic Brands says it is continuing to finalise its annual results and will resume trading.
FTI Consulting has been lined up as the administrator should it collapse. It has been carrying out contingency planning as Mosaic Brands tries to cut a deal with its unsecured creditors.
Convertible bond holders needed to agree to extend the payment terms for their debt, at a lower interest rate.
Mosaic Brands in 2021 raised $32m worth of convertible notes at an 8 per cent coupon over a three-year term with Spotlight among major supporters.
The bonds were to rank behind ANZ loans but ahead of ordinary equity.
The raise came after Mosaic Brands purchased the Ezibuy business, which it put in voluntary administration last year.
Mosaic Brands sourced hybrid debt as it faced challenges.
The current note terms have been varied from $1.24 per note, including $1 face value and 24c capitalised interest, to $1.5279 per note, including fees.
The maturity date has moved from September 30 to March 31, 2026 and the minimum conversion price has moved from 25c to 10c.
The cash interest rate is moving from 8 per cent per annum to 20 per cent per annum, to be calculated in quarterly arrears.
Mosaic Brands faced collapse if the bond holders had voted against the amended terms.
DataRoom reported in September that Mosaic Brands was applying pressure on landlords to cut rents.
Mosaic Brands, which last traded at 3.6c, has been suspended from ASX trading since the start of August.
Safe harbour law provisions protect directors from trading while insolvent to give a company time to reorganise its affairs.
The understanding is the lenders to Mosaic Brands have so far been supportive of the group, which owes between $20m and $40m to Hillco.
However, negotiations have been unfolding with landlords, who are believed to be taking a tough stance, including Dexus Property, Westfield owner Scentre (which has minimal exposure), Vicinity and Stockland.
Mosaic operating nine retail clothing brands with about 700 stores in Australia and New Zealand and through online platforms.
It last updated the market on its performance in July and now plans to close stores and cut costs.
It flagged it would report an operating earnings before interest, tax, depreciation and amortisation loss of between $5m and $10m and an earnings before interest and tax loss of between $15m and $20m for the year to June.
It also expects a loss for the first half of this financial year.
The disruption of migrating to a fully integrated logistics supply chain and distribution system with a newly appointed global partner has hurt the group.
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