The Financial Times has reported that Comet is due to hold crucial talks with trade credit insurers this week to determine whether they will continue to offer cover to its suppliers following next month’s planned sale of Comet to OpCapita.
A vital part of the electrical retail market, credit insurers charge a premium to protect suppliers against the risk of a retailer defaulting on payment terms. In short, it is often the case that if a business cannot secure credit insurance or, get a high enough credit score, that no credit or limited credit will be extended by suppliers. In these uncertain times many suppliers are unwilling to offer unsecured credit which can put many businesses under huge financial stress.
With the change of ownership of the Comet business against the backdrop of the weakening consumer electrical market, it means insurers are reassessing the level of cover they will provide Comet in the future.
Two trade credit insurers have told the Financial Times they intend to probe how OpCapita’s financing of the Comet acquisition could affect suppliers in the event that the chain enters administration in the future.
This includes how a £40m asset-backed loan, which could be secured on the retailer’s stock, potentially affects “retention of title” terms which give suppliers the right to reclaim any unsold stock in the event of an insolvency. In effect that would allow suppliers to enter and take back any unpaid for stock should the business fold in the future but, more significantly, this statement could lead to thinking that the £40m loan itself may also be called into question.
Kesa and OpCapita have yet to name the source of the agreed £40m facility, which could be used as “additional working capital” during the run-up to peak trading ahead of next Christmas. This would be on top of £30m of funding from OpCapita, plus Kesa’s £50m dowry.
A spokesman for OpCapita told the FT that the meetings had been scheduled to happen for some time, and were part of a regular dialogue with credit insurers, and were principally to discuss Christmas trading and Comet’s strategy.
In any event, any reduction or removal of credit insurance could affect Comet quite seriously.