The Australian department store chain, owned by an Anchorage Capital Partners-backed group, faces growing financial pressure, the Australian Financial Review reported on Monday. The company and its owner have previously denied that it is insolvent.
The board of David Jones, the Australian department store chain, is considering whether the business remains solvent, the Australian Financial Review's Street Talk column reported on Monday.
The report said the chain's primary lender, Hilco Global, "appears supportive for now, but financial pressure is growing." It did not say the company had appointed administrators or advisers, and no such appointment has been announced.
The owners and the lender
David Jones is owned by Riley Street Group, which is backed by the private equity firm Anchorage Capital Partners. Hilco replaced Gordon Brothers as the company's trade-finance lender, under a facility reported to be worth more than A$200 million.
The company and its owner have previously denied that David Jones is insolvent, and have denied reports that Hilco had brought in insolvency advisers.
Why a solvency review matters
A board considering solvency is weighing whether the company can pay its debts as they fall due, which can lead to new funding, a restructuring, or an external appointment if the answer is no.
A review is not an outcome. Boards under financial pressure often test solvency formally precisely so that they can show they have done so, and the lender's continued support is the most important variable in the near term.
The private equity angle
For investors in private markets, the case is a familiar one: a retailer bought by a turnaround-focused owner, financed by asset-based lenders, operating in a difficult consumer environment. The stance of the asset-based lender, rather than the equity owner, often determines how much time such a business has.
Two readings
One reading is that this is a stressed company being managed carefully. The lender is supportive, the owner has denied insolvency, and a formal review is a sign of a board doing its job.
The other is that a report of solvency deliberations, alongside a lender described as supportive only "for now," suggests the company's options are narrowing, and that any change in Hilco's position would quickly become decisive.
What to watch
Any statement from David Jones, Riley Street Group or Hilco, any new funding or restructuring announcement, and any appointment of external advisers or administrators.