January blues hit the shops early - and stay later

The classic insolvency is back. Many UK retailers are finding trading conditions just too tough and bringing in the administrators. January is traditionally the time when retail insolvencies come to the fore - last year brought Allders - but many high street names did not even wait until the new year, and insolvency lawyers found themselves working through the Christmas holidays.

On the high street, clothing retailer Kookai is the latest casualty, with holding company Adjustbetter bringing in the administrators. Ashurst head of insolvency Nick Angel picked up the instruction from Deloitte.

Meanwhile, early last week, Eversheds' Birming-ham office scooped another high-profile case for its insolvency team when Golden Wonder announced it had brought in administrators Kroll. Partner Louise Pheasant is in charge on Golden Wonder and was also involved last year when Eversheds advised MG Rover after the car manufacturer collapsed with debts of more than £1.4bn. Denton Wilde Sapte (DWS) is also advising Kroll. DWS acted for Longulf in 2002 when it bought most of the Golden Wonder brands.

Simon Neilson-Clark's insolvency team at DLA Piper Rudnick Gray Cary has been instructed on a trio of insolvency mandates, beginning with off-licence chain Unwins, which brought in KPMG when it filed for administration just before Christmas. The firm is also acting for Kroll as it manages the fallout from music retailer MVC, a second pre-January case. Finally, Neilson- Clark's team landed a PricewaterhouseCoopers instruction when AIM-listed Canterbury Foods, which supplies school meal ingredients, announced that it, too, had collapsed. So is it just the January blues, or are there other factors in play?
What Alastair Beveridge, administrator at Kroll, calls the "seasonal factor" has certainly played a part in the raft of recent insolvencies. "Christmas ought to be a boom time for retailers; they should be flush with cash and bring in lots of stock. But by the end of the year rent, VAT bills and suppliers' invoices can hit them and they may suffer a cash crunch," he says.

"Christmas has always been a busy time for insolvency practitioners," agrees Neil Griffiths, insolvency partner at DWS and the lawyer advising Kroll in the Golden Wonder administration. "Companies often bring in the administrators to get creditors off their backs for Christmas. They hope that blue skies will appear in the new year."

Tough trading conditions in the retail sector also have to be taken into account. "Consumer spending is not so high and the feelgood factor has gone," claims Griffiths. Most observers expect more scalps before the month is through, with furniture and clothing singled out as particular trouble spots.

However, for Clifford Chance insolvency partner Adrian Cohen, these cases fail to point to any major trauma in one sector of the market. "The insolvency market is still relatively quiet and we haven't got any big industry sectors which are suffering wholesale problems," he says. Cohen points to the last few years, which have seen full-scale troubles in the energy and telecommunications industries, to name a few.

Another potential common thread that runs through at least some of the headline-grabbing cases is that the companies involved have experienced a change of ownership in the recent past.

Unwins was bought by DM Private Equity in March 2005 for £32m, while MVC was spun out of Woolworths last summer after a workout. A group of private equity investors bought the music retailer in August 2005 for what was considered a bargain basement price of £5.5m. Even Golden Wonder has its fair share of owners. Prior to the Longulf acquisition in 2002, the brand was owned by private equity group Bridgepoint, which bought it from Legal & General in 2000.

"Workouts you wouldn't have heard about at the time, because they went well, are now becoming failed workouts. Owners have been caught by surprise by the current trading conditions," says Griffiths.

However, Beveridge does not think the change in ownership is to blame, instead placing the focus on the already alluded to difficult trading conditions and the dominance of supermarkets. "Some of the supermarkets have got very big very quickly and sell a range of products that were once only to be found on the high street - and they sell them cheaply."

Insolvency practitioners have diverging opinions on the cause of the current outbreak, but with tough trading conditions, the rise in supermarkets and frequent changes in ownership here to stay, the January blues could stretch well into 2006.

A&O, Simmons, CC, Mayer Brown capitalise on rise of CDOs

Collateralised debt obligations (CDOs) are one of the fastest-growing parts of the fixed income market, and one on which lawyers have been quick to capitalise. As issuance increases, templates are becoming standardised and margins are getting squeezed. But there is still plenty of innovation in the market and securitisation lawyers have delivered a series of bespoke deals.

Allen & Overy (A&O) partner Philip Jarvis advised Merrill Lynch on the Dekania Europe CDO, which opened up a new asset class by giving small and medium access to the international capital markets. This access has been barred to them because of their inability to offer debt issues of sufficient size. The transaction works by having the 20 insurance companies issued with subordinated bonds that were then repackaged into a CDO issue by special-purpose vehicle Dekania Europe CDO I.

Financial institutions cleaning up their balance sheets is driving much of the issuance in this area. The big banks have been keen to have a spring clean pre- Basel II, and Simmons & Simmons scooped the largest-ever collateralised loan obligation (CLO) to be placed fully on the bond market when it advised Barclays Bank on its £5bn offering. The deal, led by capital markets partner Ian Sideris, follows hot on the heels of a similar transaction issued by HSBC, advised by Clifford Chance and A&O.

Until the Simmons/ Barclays CLO in December, Clifford Chance held the crown for acting on the largest funded CLO in Europe. It advised a subsidiary of Bayerische Hypo-und Vereinsbank on a €5.5bn (£3.78bn) true sale securitisation, led by partners Kirti Vasu, Michael Weller and Jeremy Walter.

Following his work on the restructuring of ABN Amro's North Sea Funding arbitrage conduit, Mayer Brown Rowe & Maw partner Mark Nicolaides advised ABN on a $550m (£378m) synthetic CDO issued by North Sea Island. Using new 'pay-as-you-go' technology, it provides exposure to ABN's $3bn (£2.06bn) portfolio of asset-backed securities.