High-Yield Losses Cost Empik With Amazon Lurking: Poland Credit

Aug 05, 2014 4:58 am ET

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Aug. 5 (Bloomberg) -- Poland’s biggest book and music retailer missed the best moment to sell Eurobonds amid the first losses by junk-rated securities in more than a year.

NFI Empik Media & Fashion SA, rated six steps below investment grade at Moody’s Investors Service, postponed the sale of six-year euro-denominated notes, a person familiar with the matter said yesterday. The company was trying to sell the debt with a yield of 8.5 percent to 8.75 percent, which would have made them the most-expensive senior-secured securities sold this year worldwide, according to data compiled by Bloomberg.

Junk bonds are losing their allure amid intensifying risks from Ukraine to the Middle East and as speculation over the timing of U.S. Federal Reserve tightening triggers a retreat from higher-yielding assets. Empik, which faces competition from Amazon.com Inc., offered 240 million euros ($334 million) of bonds to help refinance 1.46 billion zloty ($469 million) in short-term debt, the company said in a July 25 statement.

“Sentiment on the high-yield market has markedly deteriorated and surely this doesn’t help to sell debt,” Piotr Nowak, who helps manage $4.9 billion as deputy head of fixed income at PKO TFI mutual fund in Warsaw, said by e-mail yesterday. “Empik missed out on a good time to sell bonds last month, when it would have paid less. Investors know that the company is under pressure to refinance.”

Junk Loss

The Bank of America Merrill Lynch Global High Yield Index slid 0.9 percent last month, trimming gains for the year to 4.9 percent. The last time the index fell was August 2013. High- yield, high-risk, or junk, debt is rated below Baa3 by Moody’s and lower than BBB- by Standard & Poor’s. Global high-yield corporate bonds handed investors a 1.9 percent loss in the past month, according to indexes compiled by Bloomberg.

Empik and its majority shareholders postponed the offering “due to adverse developments in market conditions” since the launch of the deal and will to continue to monitor the situation, according to the person, who asked not to be identified because they’re not authorized to speak about it.

Katarzyna Gorecka, a spokeswoman for Empik, declined to comment on the bond sale when contacted by phone yesterday.

Empik’s brand dates back to 1948, when it ran the only outlets where Poles were allowed to read international books and newspapers during the communist era. Its net loss widened to 49.7 million zloty in the January-April period from 17.3 million zloty a year earlier, the company said on July 25.

Amazon Centers

Moody’s assigned Empik a B3 rating reflecting “fairly high adjusted leverage, high geographic concentration on the Polish market and the industry in which it operates” as risk elements, balanced “against the company’s strong market position and diversification,” analyst Sven Reinke wrote on July 28.

Amazon will open the first of three planned logistics centers in Poland in October and hasn’t disclosed plans for a Polish on-line service. “Our approach is step-by-step,” Anette Nachbar, a Munich-based spokeswoman at Amazon, said by phone yesterday. She declined to elaborate further.

Amazon’s potential entry is a “major competitive threat” to Empik, Tanvi Arora, Singapore-based credit analyst at Lucror Analytics Pte Ltd., said by e-mail yesterday.

“While the company is taking initiative to develop itself as a multi-channel retailer, concerns remain on whether it can strengthen its position in e-commerce,” he said.

--With assistance from Hannah Benjamin in London.