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Hedge funds are battling over the debt of one of Europe’s largest lingerie brands, as US-style so-called creditor-on-creditor violence seeps into the continent’s markets.
Redwood Capital this month seized control of Dutch lingerie retailer Hunkemöller, the latest in a string of sharp-elbowed manoeuvres that enabled the New York-based distressed debt specialist to leapfrog other lenders in order of priority.
A rival group of creditors led by Cheyne Strategic Value Credit is now considering a range of legal options in Europe in a bid to reverse Redwood’s takeover, according to people familiar with their plans. The group, which also includes Man Group, Contrarian Capital and St James’s Place, already sued the US distressed debt specialist and Hunkemöller in New York in November over an earlier transaction that allegedly violated the terms of their bonds.
The dispute over control of the struggling retailer is reminiscent of the aggressive confrontations between creditors that have become commonplace in the US but have only recently begun to appear in Europe.
Last year, Hunkemöller agreed to borrow €50mn from its largest existing bondholder, Redwood, as it sought to repair its finances.
In 2023, rating agency S&P had warned that, “absent improvement in operating performance beyond our base case”, the company’s capital structure risked “becoming unsustainable”.
Under the transaction, Redwood lent Hunkemöller €50mn in super senior debt, which ranked ahead of all of the company’s outstanding bonds. At the same time, the hedge fund’s €186mn in bonds were swapped for new, higher-ranking notes of the same value.
Other creditors had approached the company to offer financing solutions but these options were not taken, according to people familiar with the matter.
In June, Hunkemöller confirmed that this new debt “will be paid out in priority to other [senior secured notes]”.
The deal pushed the rival creditor group — whose €84mn of “senior secured” bonds were leapfrogged by Redwood’s new “super senior” debt — further down the pecking order in its claim on Hunkemöller’s assets.
In its US legal action, the group claimed that the so-called “up-tiering” transaction had “destroyed [the] contractual guarantees” in their bond documents.
Cheyne declined to comment. Redwood and Hunkemöller did not respond to requests for comment.
Redwood has also been looking to target other European companies with similar tactics, according to people familiar with the matter, having recently built a large position in the bonds of Victoria Plc, the troubled UK carpet maker that has been a supplier of red carpets to the royal family.
