Debenhams has entered into a pre-pack administration, wiping out equity for shareholders including Sports Direct.
Chad Griffin, Simon Kirkhope and Andrew Johnson of FTI Consulting have been appointed as joint administrators of Debenhams PLC.
Debenhams said only the PLC part of the business has been placed into administration and the underlying group operating companies - under which Debenhams’ commercial relationships with suppliers, employees, pension holders and customers all sit - are unaffected.
The operating companies were immediately sold to a new company owned by Debenhams’ lenders and are continuing to trade as normal, including Debenhams 166 stores.
Debenhams said the deal delivers “continuity for all group operations and was in the best interests of the group’s creditors, employees, customers, pension holders and suppliers.”
Under its new ownership, Debenhams will have available to it “significant additional funding” in line with the £200m cash injection announced on 29 March 2019.
Debenhams’ lenders paid £101.8m for the group and took on £520m of debts and its pension obligations, taking the total cost to £621.81m.
There are provisions for Debenhams to be sold on immediately for a price that would repay Debenhams’ debts and secured pension liabilities in full and potentially yield a return for shareholders.
Debenhams said it will continue to implement the restructuring of its operations, including optimising the store portfolio to improve its trading performance and reduce the level of its debt by selling some of its assets.
A company voluntary arrangement (CVA) is likely to be implemented to close stores and reduce rents.
The business said: “The group has undertaken a thorough review of its store estate in the context of the current and future retail environment and plans to proceed with a restructuring of the estate that, if approved, will result in a significant overall reduction in the group’s rent burden and underpin a sustainable future for the group. This is a critical component of the group’s restructuring plan and executing this is in part linked to the provision of the £200m facilities and lenders implementing a £100m debt-for-equity swap.”
Terry Duddy, Debenhams’ chairman, said: “It is disappointing to reach a conclusion that will result in no value for our equity holders. However, this transaction will allow Debenhams to continue trading as normal; access the funding we need; and proceed with executing our turnaround plans, whilst deleveraging the group’s balance sheet. We remain focused on protecting as many stores and jobs as possible, consistent with establishing a sustainable store portfolio in line with our previous guidance.
“In the meantime, our customers, colleagues, pension holders, suppliers and landlords can be reassured that Debenhams will now be able to move forward on a stable footing. I would like to thank them all for their recent and continuing support.”
A spokesman for the Debenhams Pension Schemes said: “The trustees have been informed that Debenhams plc has been placed into administration. Debenhams plc is not the sponsoring employer of the schemes.
“The relevant employer for the schemes is Debenhams Retail Limited. Debenhams Retail Limited has been transferred to a newly incorporated company and continues to trade and operate as normal. Members can therefore be reassured that the schemes are carrying on as usual.
“The trustees have worked with our specialist advisers throughout the process of the company’s refinancing and restructuring, to ensure that members’ interests are taken into account, and we have consulted closely with The Pensions Regulator and the Pension Protection Fund at every stage.
“We are in the process of writing to all members with further information, and we will continue to keep them informed.”
On 29 March, Debenhams agreed a £200m refinancing deal with its existing lenders. The retailer has received the first facility of £101m. The remaining £99m was conditional on Sports Direct – which owns 29% of Debenhams – or another major (25%-plus) shareholder making a “firm and binding offer” for Debenhams, which must include an agreement to refinance its £560m group debt.
Alternatively, Sports Direct could provide funding for Debenhams in the form of equity or a loan known as a “subordinated debt instrument” and cancel its request for an extraordinary general meeting (EGM) to appoint its boss, Mike Ashley, as CEO of the department store.
The deadline for either option was 8 April, or Debenhams would enter administration.
Sports Direct tabled a last-minute £150m cash bid for Debenhams on the condition that CEO Mike Ashley is named chief executive of the department store chain. Debenhams rejected the offer.
In the early hours of this morning Sports Direct made a revised proposal to Debenhams, offering to underwrite a £200m pre-emptive equity issuance to existing Debenhams shareholders.
However, Debenhams said the offer was “highly conditional” and that it was “not sufficient to justify an extension to the deadline”.
Debenhams falls into administration