Struggling UK department store retailer Debenhams today (22 March) revealed it is seeking a cash injection of up to GBP200m (US$263m) from existing lenders – just minutes before Sports Direct International offered to buy its Danish business Magazin du Nord for GBP100m.
Last week the chain was offered a GBP150m interest-free loan from its largest shareholder Mike Ashley, who is also the founder of Sports Direct. One of the conditions of the loan would be the appointment of Ashley as CEO of Debenhams.
Instead, Debenhams Plc is now trying to secure new funding by asking shareholders to give consent to a new GBP200m loan that would give it “the ability to pursue restructuring options to secure the future of the business.” But the retailer also warned the deal could wipe out their investment.
Separately, Debenhams said the latest proposal from Sports Direct “does not address the company’s funding and restructuring requirement, and that profitable Magasin “is an important part of any lending proposition.” It also points to “obvious concerns with the proposal that Mike Ashley becomes CEO of Debenhams given that Sports Direct owns our direct competitor House of Fraser.”
Following the announcement of Debenhams’ new restructuring plans, Patrick O’Brien, UK retail research director at leading data and analytics company GlobalData, said “it looks likely that creditors will approve plans to take control of the company in return for GBP200m 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.
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By GlobalData“We think it likely that this will result in a smaller store portfolio than planned, with accelerated job losses, though landlords are becoming much more realistic about renewal terms – yesterday Debenhams’ mid-market rival Next revealed that it negotiated an average of 29% discount on the leases it renewed last year.”
