Debenhams has revealed that it is seeking a cash injection of up to £200m over the next week from existing lenders as it tries to secure its future and fend off a boardroom takeover by Sports Direct tycoon Mike Ashley.
The struggling department store is seeking permission to change the terms of certain bonds to put in place new money facilities on a secured basis from its existing lenders and noteholders. This it stated will “provide liquidity headroom for Debenhams’ future funding needs and deliver stability for its customers, staff, suppliers and pension holders.”
The move will also allow it to turn down Ashley’s recent offer of a £150m loan as part of a deal to up his stake in the chain and put him in charge.
Lenders have until 5pm next Thursday to approve the cash call, which the firm stressed will give it the ability to pursue restructuring options to secure its future.
However, the business warned that some restructuring options – if they materialise – could result in no equity value for current shareholders. Debenhams gave no further details but analysts suggested one option could be a pre-pack administration – an insolvency procedure in which a firm arranges to sell its assets to a buyer before appointing administrators to facilitate the sale.
This prompted the company’s share price to fall by nearly two-thirds this morning to 1.1p before recovering slightly.
Debenhams announcement was followed by a statement from Sports Direct offering to buy Debenhams’ Danish Magazin du Nord business for £100m, in a bid to stop the drastic refinancing which could wipe out Ashley’s near 30% equity stake.
Under the Sports Direct’s proposal, Debenhams would have a 12 month option to buy back Magasin Du Nord at the price at which it was sold and also have the right to continue to market the business.
It added that the deal would involve Ashley becoming a director and the CEO of Debenhams to assist with its restructuring process. “Sport Direct believes its proposal would provide additional management and first class leadership to Debenhams through this challenging period of restructuring, together with additional funding,” it said.
Debenhams has yet to respond.
Commenting on today’s developments, Patrick O’Brien, UK Retail Research Director at GlobalData said: “Mike Ashley’s attempt to create a ‘House of Debenhams’ looks doomed to be an expensive failure after Debenhams revealed its restructuring plans. It looks likely that creditors will approve plans to take control of the company in return for £200m of additional financing, wiping out Sports Direct’s near 30% equity stake, and all other shareholders.”
He added: “Should Ashley’s attempt to disrupt Debenhams’ plans fail, landlords will be the other big losers here as the likely pre-pack administration will mean the new owners – the bondholders and other lenders – will be able to exit or renegotiate leases on their stores. We think it likely that this will result in a smaller store portfolio than planned, with accelerated job losses.”
NAM Implications:
- The signs for stakeholders have been obvious for some time…
- …and proactive NAMs will have made any necessary preparations…
- …thereby minimising any potential losses…
