AIB and Bank of Ireland to escape McColl’s losses amid rescue deal

Retailer’s wholesale partner, Morrisons, struck a deal to take over the insolvent company

AIB and Bank of Ireland are set to avoid multimillion pound losses on loans to UK convenience stores chain McColl's after the retailer's wholesale partner, Morrisons, struck a deal over the weekend to take over the insolvent company.

AIB's UK division is understood to be among the main lenders across six banks that had committed about £165 million (€193.5 million) of facilities to McColl's. Almost £162 million had been drawn down as of last August, according to company filings at the time, which had also listed Barclays, HSBC, NatWest, Santander and Bank of Ireland as lenders. Sources said that about 14 per cent of the loans had been sold down to distressed debt investors.

The planned takeover was confirmed late on Monday, following a bidding battle over the weekend after McColl’s said it was entering administration. It will see the company’s lenders being repaid immediately on completion of a deal, according to a number of reports.

Spokesmen for AIB and Bank of Ireland declined to comment on the extent of their respective exposures to McColl’s.

The UK retailer, which has been struggling in recent times from supply-chain disruption caused by Brexit and Covid-19, inflation, fierce market competition and a high debt burden, said on Friday it was moving to have PwC officials appointed as administrators of the company after it failed to secure an extension of an existing waiver on its banking covenants. McColl's shares were also suspended the same day.

Rejected rescue

The lenders had rejected an earlier solvent rescue offer from Morrisons, which is McColl’s wholesale supplier, before Friday’s announcement. That bid had involved the banks rolling over debt they were owed.

McColl's, which operates about 1,165 convenience stores, including more than 200 outlets operating under the Morrisons Daily brand, was valued at about £200 million when it floated on the London Stock Exchange in 2014. However, it had a market capitalisation of just over €3 million when its shares were suspended last week, following a 94 per cent valuation slump in the space of 12 months.

The company, which employs 16,000 people, had found it increasingly difficult to compete with larger companies such as Tesco, J Sainsbury and Co-op in recent times.

Morrisons, the UK’s fourth-largest supermarket chain, won a bidding war over the weekend with gas station and convenience empire EG Group for McColl’s. Morrisons will also take on its target’s two pensions plans.

Morrisons, owned by the US private equity firm Clayton, Dubilier and Rice, is the main wholesale supplier to McColl's and had been locked in financing talks with the company and its banks for months. It had previously said that it could face a financial hit of as much as £130 million from the collapse of McColl's.

McColl's insolvency is the biggest collapse in the UK retail sector since the 2020 failure of Arcadia Group, Philip Green's fashion empire that owned brands including Topshop and Dorothy Perkins.