Bendon parent Naked needs another US$15m to keep BNZ onside

Heidi Klum on set at a campaign shoot for the Bendon lingerie line, Heidi Klum Intimates.

Bendon's Nasdaq-listed owner Naked Brand Group needs to raise another US$15 million to keep Bank of New Zealand onside.

Naked has raised US$32.4 million by issuing new capital and selling convertible notes since the end of January and said it will need more funds to bridge another two years of forecast losses. The lingerie company had accumulated losses totalling $151 million as at July 31, all but wiping out its share capital and leaving its equity position at just $4 million, according to first-half company accounts filed with the US Securities Exchange Commission last week.

When Bendon reverse-listed on the Nasdaq through Naked, the Kiwi underwear company was valued at US$103 million, about half the initial valuation but still well up on the NZ$58.7 million Eric Watson's Pacific Retail Group paid back in 2002.

In the past, Bendon had relied on Watson to keep it funded, but his disputes with New Zealand's Inland Revenue Department and former business partner Owen Glenn closed that avenue in late 2018.

Of the US$32.4 million raised last year, US$14 million came after after July 31. However, with an operating cash outflow of NZ$9.7 million, Naked didn't have enough working capital and said it had taken steps to secure more funding.

Naked's NZ$20 million loan from BNZ is due at the end of January, and while the lingerie company continued to breach its lending covenants, the board expects to get another extension to the loan.

BNZ took over the Bendon debt in mid-2016, replacing a $17.8 million loan, $18.1 million overdraft and a $3.4 million facility with Australia & New Zealand Banking Group. Bendon breached ANZ lending covenants in the 2015 financial year.

The lingerie maker has been in breach of the BNZ covenants since December 2016 and would have had to reduce its facility to $10 million in the 2018 merger with Naked if Watson's Cullen Group hadn't guaranteed that debt. The bank's interest rate has increased to 5.66 percent from 4.84 percent in January 2017.

Naked's lending covenants were reset in May after ongoing breaches in prior periods, and at the time of the first-half report, it was only subject to a minimum inventory to bank debt cover ratio of 1.2 times, a ratio that Naked has been in breach of every month since those statements were signed by directors.

BNZ hired Korda Mentha to review Naked's cash flow and working capital history and forecasts. The lender told Naked's board that it will continue to monitor the group's performance during the debt renegotiations, according to Naked's January 2019 annual report which was re-filed with amendments last week.

Naked's directors said on January 3 that they still expect a further extension of the current facility once further funding is raised.

The company's first-half report shows the board signed off on the accounts as a going concern, despite there being "substantial doubt" about the company's ability to sell assets and meet its debts as they fall due.

For the Naked to remain solvent, it will need to raise those funds before the end of February, lift sales and widen gross margins in line with forecasts, generate positive cash flow, renegotiate the banking facility, and retain support of its creditors who have let it defer payments until it has adequate cash flow.

Naked has overhauled its global operations, shutting its US wholesale business, closing its Sydney office, and cutting 67 jobs.

"Overall, the first stage of our transformation is complete and we are excited about what's to come and have some excellent plans in progress and on the horizon for our business," chief executive Anna Johnson said in a statement on Monday.

"We plan to provide an operational update in the first quarter of 2020 to discuss new product initiatives, sourcing and supply chain initiatives and potential divestitures."

Naked's net loss widened to $28.7 million in the six months through July from $26.1 million a year earlier, as sales sank 26 percent to $42.1 million, outpacing the 5.2 percent decline in operating costs to $41.9 million.

It said profitability was held back by the lack of working capital to adequately stock stores, reduced foot traffic at its retail network, and lower wholesale revenue.

Naked's inventory level was almost $18 million at July 31, down from $21.1 million six months earlier.