Homeplus Co., which is undergoing a rehabilitation process, is discussing emergency operating fund support with its largest creditor, Meritz Financial Group, while differences remain between the two sides over loan terms.
According to the investment banking (IB) industry on the 17th, Meritz recently conveyed to Homeplus Co. that it could review the possibility of providing an ultra-short-term loan of about 100 billion won for two to three months. However, it is said to have proposed joint and several personal guarantees from MBK Partners, Homeplus Co.'s largest shareholder, and the management as a condition.
Regarding this, Homeplus Co. said, "Meritz already holds collateral on 68 Homeplus Co. real estate stores worth 4 trillion won for a 1.2 trillion won loan, and it also has priority over proceeds from asset sales carried out after the rehabilitation process," and added, "When the proceeds from the Express sale and subordinated real estate collateral alone are sufficient, demanding personal joint and several guarantees even for a two to three month ultra-short-term loan for operating funds is effectively no different from shunning operating fund support for a rehabilitating company."
Meritz holds loan claims of about 1.2 trillion won secured by collateral on 68 Homeplus Co. stores. Proceeds from major asset sales underway after the rehabilitation process are also structured to be used first to repay Meritz's claims. Homeplus Co. maintains that, considering the proceeds from the Express division sale and subordinated real estate collateral, it has room to raise additional operating funds.
The company explained, "For rehabilitating companies, asset sales are a key means of securing operating funds," and added, "At present, a significant portion of real estate sale proceeds is used first to repay claims, making it difficult to secure operating funds needed to sustain operations."
MBK Partners, Homeplus Co.'s largest shareholder, and the management have already committed personal assets and credit to support Homeplus Co.'s rehabilitation. In addition to previous personal contributions and joint and several guarantees, in Mar., Chair Kim Byung-ju provided home collateral, among other steps, to raise an emergency 100 billion won in operating funds that was provided to Homeplus Co.
A Homeplus Co. official said, "The ultra-short-term operating loan and the DIP loan requested from the largest creditor group, Meritz Financial Group, are key mechanisms to maintain operations and preserve corporate value," and appealed, "If operating funds are not supplied in a timely manner, maintaining the rehabilitation process itself could become difficult."
However, Meritz's position is that, with the outlook for Homeplus Co.'s rehabilitation uncertain, mechanisms such as joint and several guarantees by MBK Partners are needed to avoid allegations of breach of trust and to persuade shareholders.
Earlier, the Seoul Bankruptcy Court extended the deadline for approval of the rehabilitation plan. The industry says the feasibility of continuing the rehabilitation process could be affected by whether additional operating funds can be secured.