New Look is believed to be planning a so-called debt-for-equity swap at the start of 2019 in order to cut its £1.3 billion debt.
According to The Mail on Sunday, the fashion retailer has asked advisers to find a solution for its debt problem, and will be finalising the plan in the next three months.
A debt-for-equity swap would mean bondholders are offered a share in the business in order to help New Look reduce its debt.
This in turn would stop high levels of cash being spent on interest payments, which according to ratings agency Moody’s, are now consuming 80 per cent of the retailer’s earnings.
The news comes after Moody’s downgraded New Look’s corporate family rating and probability of default rating last month.
At the time, Moody’s cited concerns about New Look’s ability to generate enough cash to continue trading.
It added that current debt levels were unsustainable, and that there was not enough internal cash flow generation to meet debts nor capital expenditure requirements.
Now it’s thought New Look owner Brait could help in refinancing the business through its investment firm, which is controlled by South African retail tycoon Christo Wiese.