Signa, the parent company, takes the books to court: at least 13 billion in debt

In the end, even the parent company of the luxury real estate group, with headquarters in Austria, Signa, could not resist and now it transpires that last Wednesday it presented a request for insolvency protection to the Vienna court to achieve a controlled administration, as reported by the Financial Times.

Understanding the extent of the overall assets and debts will not be easy: the Signa network has a multi-level ownership structure made up of over 1,000 corporate entities and trusts in Europe, the United States and offshore still operational and held, as majority, by the parent company Signa Prime.

In total, 120 banks are exposed to Signa, according to a person familiar with the group's lending. These include Switzerland's Julius Baer and Credit Suisse, now part of UBS, as well as Austria's Raiffeisen, Bank of China, France's Natixis and Italy's UniCredit and Citi . A nice, well-distributed pile of insolvencies.

Julius Baer has outstanding debts to Signa of more than 600 million Swiss francs and Raiffeisen Bank International of more than 750 million euros, people familiar with the details said. A slightly lower amount must be paid by Unicredit. Everyone says that the portfolios are well protected, but even if there were real guarantees, these would take away cover for others. The hole, however, will be there.

In a note last week, JPMorgan analysts estimated that Signa owed at least 13 billion euros overall to lenders, but given its complex corporate structure, nasty surprises are not impossible. Many of its financiers are small regional banks that have financed local real estate projects, including several German state-owned Landesbanken, including Frankfurt-based Helaba and Munich-based BayernLB, which are said to be exposed to hundreds of millions of Euro.

Signa Holding's administration will send shockwaves through Central Europe's retail sector as it prepares for the most important month of the year: Signa is the majority owner of the region's largest department stores, including the German Galeria Kaufhof and KaDeWe and the Swiss Globus. The moment is already negative for the luxury commercial distribution sector, and the fallout could be very serious.

It was also a shareholder in Selfridges Group, although Thailand's Central Group, which exercised share conversion rights linked to a convertible loan, said it had acquired control of the famous British department store.

Germany's largest department store chain, Galeria Karstadt Kaufhof (GKK), owned by Signa and in financial trouble for years, said on Thursday that Signa's administration had had no immediate impact. However, he certainly won't be able to get any help, at this point, from the parent company.

This year GKK announced the loss of thousands of jobs in an attempt to stabilize its balance sheet. The company was also expecting €200 million in support from Signa, with the first tranche expected in February, to fund its relaunch plans, but these are, at this point, very unlikely, with the possibility of further restructuring and layoffs .

In total, around 40,000 people work in companies owned by Signa, according to investor presentations prepared by the company in 2022. Previously, Signa's website said the group had assets of 27 billion euros, with another 25 billion euros of projects in the pipeline.

The group has been in financial difficulty for more than a year as its debt-fueled business model has been hit by rising interest rates. It was due to repay €1.3 billion to lenders in 2023 but has struggled to do so, leading to standstill agreements with banks and a search for new capital that has seen Benko fly regularly to the Middle East and talks with investors including the hedge fund Elliott Management. Unfortunately it all turned out to be useless.

Shareholders include some of the most important names in European business, such as the French Peugeot family, Tetra Pak Rausings, the Austrian industrialist Hans Peter Haselsteiner and the pet food magnate Torsten Toeller.

At their insistence, Arndt Geiwitz, a German insolvency expert, was called in this month to take control and attempt a rescue deal to avoid administration.

Signa's management now has little room for maneuver. While she will lead the process, under Austria's self-administration regime an external administrator will have oversight, with a veto over any transaction. The company has 90 days to present a plan to creditors, who must accept it to avoid receivership.