Lenders Deny Waiver for UK’s Iceland

LONDON (Reuters) – Lenders to UK food retailer Iceland have rejected a waiver request to let it buy back some of its debt, but have allowed the company to buy additional stores, banking sources close to the deal said.

The waiver asked banks to let Iceland use 75 million pounds ($109.6 million) of cash on its balance sheet to buy back its senior debt at market prices, but the proposal was rejected by lenders amid continued retail sector weakness.

Iceland is owned by Icelandic private equity firm Baugur and is faring better in the downturn than some others in Britain’s embattled retail sector.

Discussions over the possible buyback are now closed after Iceland and Baugur decided it would cost too much to improve the waiver to get it passed by the company’s lending syndicate.

Debt buybacks remain controversial in the loan market as lenders encourage companies to conserve cash in the downturn, but are less controversial in the bond market.

Many lenders believe if a borrower is buying back its debt, its banks should be paid back at face value or par rather than at current depressed market rates.

Another part of the waiver which allowed Iceland to buy new stores was passed. On Jan. 7 Iceland confirmed it had acquired 51 stores formerly occupied by now bankrupt sweets-to-DVDs chain Woolworths. (Reporting by Alasdair Reilly; Editing by David Holmes)