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El Corte Ingles to restructure $6.6-billion debt as profits plunge

A woman works at the Zara factory at the headquarters of Inditex in Arteixo, northern Spain, in this file photo.


El Corte Ingles SA, the world's third-largest department store chain by sales, is seeking to restructure €5-billion ($6.6-billion) of net debt with its lending banks as the family-owned group weathers a sharp fall in profits in its recession-hit Spanish homeland.

The department store, which has for more than 70 years sold products ranging from clothes to food to the country's aspirational middle classes, has hired Morgan Stanley to advise it on extending the maturities of its debts.

Banks that are among the largest lenders to the company include Banco Santander SA, BBVA and La Caixa, people familiar with the process said. The company declined to comment on its lending banks.

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El Corte Ingles, which has 81 department stores in Spain and two in Portugal, and is run by its 77-year-old chairman, Isidoro Alvarez, said the restructuring process was part of its "ordinary activities" and was designed to take advantage of currently low interest rates.

The company said a new debt arrangement could be structured as a syndicated loan, or the part-securitization of loans from its sizable consumer finance division, which is the largest provider of consumer credit in Spain.

The company, which was founded in 1935 by Ramon Areces, whose descendants are its majority shareholders alongside current and retired executives, has struggled during the deep recession in Spain, where official unemployment has hit 27 per cent of the adult work force.

Amid fierce domestic competition over the past decade from low-cost supermarkets such as Dia and Mercadona for food, IKEA AB for domestic goods, and Inditex SA for clothes, El Corte Ingles has seen its consolidated net profits fall from €716-million in 2007 to €210-million last year.

The company, which according to its 2011 annual report attracts 1.5 million visitors to its stores each day, has traditionally focused on higher-cost goods that appeal to consumers searching for quality. But it has suffered during the collapse in consumer spending in Spain following the bursting of the country's property bubble.

In 2005 El Corte Ingles still remained ahead of Inditex, owner of the Zara fast fashion chain, but it has since fallen significantly behind as it remained almost wholly focused on Spain.

While the company is saddled with €5-billion of net debt against earnings before interest, taxation and amortization of €826-million, it owns department stores stretching across prime locations in every sizable city in Spain. Bankers have long viewed the possible sale and leaseback of these assets as a solution to reducing El Corte Ingles's borrowings.

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The company does not release its own accounting values of its real estate holdings, but said in a statement that its portfolio had a market value of several times the amount of debt it needed to refinance.

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