Troubled Retail Foods attracts McGrath Nicol’s attention

Retail Food Group requested a trading halt pending the release of its half-year results.

Advisory firm McGrath Nicol is believed to be hovering over Retail Food Group — potentially on behalf of its lenders — as the troubled retailer remains in a trading halt and returns to the negotiating table with its landlords.

The company behind brands including Gloria Jean’s, Donut King and Brumby’s Bakery, requested a trading halt yesterday pending the release of its half-year results, creating some nervousness in the market about its prospects.

RFG has publicly said it has been working with Deloitte, which is carrying out a review of the business, following challenges from franchisees and profit warnings. But sources said McGrath Nicol had also been close to the situation.

An RFG spokesman yesterday said the company’s senior management was not aware of McGrath Nicol’s involvement, but the group is likely to be scrutinising the business on behalf of its lenders.

Recently, the insolvency firm has been hired to work for the Australian lenders of Steinhoff Asia Pacific along with US note holders that are lenders to Fletcher Building, which is listed in Australia and New Zealand.

WEB Business 01 Dataroom RFG

McGrath Nicol declined to comment.

It is understood RFG is back in talks with its landlords in a quest for further rent reductions only two years after shopping-centre owners gave a reprieve for the challenged retailer.

Other struggling retailers around the market are said to be having similar conversations.

It has prompted some market analysts to question how the major listed landlords in the shopping centre space such as Scentre Group and Vicinity continue to report income growth at a time that the earnings of some of their major tenants like Target, BigW, Myer and David Jones are falling.

Many believe that the situation will lead to a day of reckoning for the listed shopping-centre landlords when their leases expire.

Interestingly, Premier Investments has lobbied for the former boss of the previously listed Federation Centres, Steven Sewell, to join the board of troubled department store Myer — a further telling sign of how the company’s future lease liabilities are its major challenge in its bid to boost its profitability.

Some questioned whether the auditors were struggling to sign off on the accounts of RFG as a going concern or whether the business had breached debt covenants put in place by its lenders.

The company’s market value is $373 million after the business was worth close to $1 billion almost a year ago.

The share price has crashed since media reports in early December accused RFG of mistreating franchisees and charging exorbitant costs to boost company profits — claims it has denied — but the business may still face a class action.

Its net levels are at 34.7 per cent with net debt on its senior facility at $247.1m as at June last year. The total facility is $344m.

Meanwhile, activist shareholder Sandon Capital is requesting to inspect the register of Specialty Fashion Group in what may be the precursor to a move to call an extraordinary general meeting.

Sandon Capital’s fear is that the company behind Katies, Millers and City Chic may be sold off at an opportunistic price.

The preference of the Australian-based activist investor is for an equity raising.

Noni B or a consortium backed by former boss Gary Perlstein are the two most logical buyers following a sales process run by Luminis Partners, with Anchorage Capital Partners out of the race and analysts betting that other buyout funds are unlikely to be serious acquirers.