Fashion chain overhaul plan alarms banks

Lucinda Kemeny|Mail13 April 2012

TROUBLED discount fashion retailer Ethel Austin has brought in accountant PricewaterhouseCoopers to advise on restructuring the business.

The chain of 300 stores, which grew from a single wool shop in Liverpool in 1934, has been hit by rising competition from supermarkets, compounded by general gloom on the High Street.

As a result, the company has decided to focus on opening new stores selling clearance goods and there have already been warnings of job cuts to come. Trading director Sue Tennant resigned earlier this month.

The news comes only months after Ethel Austin completed a £125m sale to ABN Amro Capital from previous private equity owners LDC.

It will set alarm bells ringing among the banking community, whose generous lending in the past few years has enabled some companies to be bought and sold for huge sums.

Ethel Austin has been a longterm client of PWC and the restructuring has the full support of its lending banks, led by Barclays. But industry sources said there were many other examples of 'walking wounded' who might not be so fortunate.

Only last week, it emerged that electrical retailer Maplin Electronics-might breach its banking covenants after a drop in sales. Owner Montagu Private Equity said that it might have to renegotiate its agreement with Bank of Scotland.

And research carried out by the restructuring division of Close Brothers bank has found the retail sector in general has become more highly indebted, making it more difficult for it to cope against the background of falling consumer demand.

However, it concluded that banks had become far more sophisticated lenders and were able to step in earlier to help companies survive through their problems rather than letting them go to the wall.

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