Debenhams has proposed a company voluntary arrangement (CVA), which if approved would result in 22 store closures in early 2020.
The 22 stores deemed as “not viable” are: Altrincham, Ashford, Birmingham Fort, Canterbury, Chatham, Eastbourne, Folkestone, Great Yarmouth, Guildford, Kirkcaldy, Orpington, Slough, Southport, Southsea, Staines, Stockton, Walton, Wandsworth, Welwyn Garden City, Wimbledon, Witney, Wolverhampton.
These stores would have rent reductions of around 50% until January 2020, allowing them to remain open for the peak Christmas trading period.
The CVA, which will be put to a creditor vote on 9 May, proposes rent reductions and lease negotiations on a further 105 stores, while 39 will be unaffected.
The 105 stores have been split into three categories and rent reductions would vary from 25% to 50%. The leases would have a mutual landlord/tenant break clause during the five-year term of the CVA.
A letter to staff, seen by Drapers, said: “There are 105 UK stores where we have proposed rent and rate reductions and mutual lease breaks to allow us to operate these stores on a lower cost base and help to make them viable. The aim is to retain as many of these stores as possible by improving trade and reducing liabilities.”
Around 1,200 store workers will be affected by the plans and were informed this morning. Debenhams has said it will try to redeploy as many as possible.
Its pension schemes will automatically enter into a Pension Protection Fund assessment period until the CVA is approved.
The department store chain said its three remaining warehouse facilities could be further consolidated as a result of this process. It has already confirmed the closure of its Lodge Farm facility.
A further seven non-retail site leases will face varying rent reductions and early lease breaks.
The proposed nominees of the CVA are Jim Tucker and Ed Boyle from KPMG’s restructuring practice. To pass, the proposal must gain a majority creditor vote of 75% and requires more than 50% of unconnected creditors to vote in favour.
In an official statement, executive chairman of Debenhams Terry Duddy said: “The CVA does not seek to compromise claims of any creditors other than certain landlords, local authorities and inter-company liabilities. All trade suppliers and the entitlements of employees will continue to be paid in full during this process.
“The group has engaged with its landlords and groups representing the landlords, pension trustees, lenders and other stakeholders, and will seek to engage further as the process progresses.
“The CVA is part of the company’s restructuring and turnaround plan. In conjunction with this, certain of the group’s financial creditors recently provided £200m of fresh liquidity and have committed to equitise £100m of debt. Value recovery for the shareholders of Debenhams plc is expected to be nil.
“The CVA proposals provide a mechanism to restructure the store estate in line with the plan outlined by management in October 2018 to reduce the current 166 UK store portfolio by closing around 50 stores. The first stage of that programme proposes up to 22 store closures in 2020.”
On 29 March, Debenhams agreed a £200m conditional refinancing deal with its existing lenders. However, the conditions were not met and it entered a pre-pack administration on 9 April, wiping out equity for shareholders including Mike Ashley’s Sports Direct.
The operating companies were immediately sold to a new company owned by Debenhams’ lenders and the stores have continued to trade as normal.
The lenders paid £101.8m for the group and took on £520m of debts and its pension obligations, taking the total cost to £621.81m.
Chief executive Sergio Bucher stepped down from Debenhams earlier this month. He has been replaced by Duddy while the business searches for a permanent successor.
A spokesman for the Debenhams pension schemes said: “The trustees are aware that a CVA has now been proposed. The CVA does not seek to compromise or reduce the employer’s obligations to the schemes. The trustees hope that the CVA will be successful and will facilitate a sustainable solution for Debenhams, which will ensure that the schemes are supported in the long term.
“As a result of the proposal of the CVA, the schemes will automatically enter into a Pension Protection Fund assessment period, until such a point that the CVA is approved by the company’s creditors. Members can be reassured that pensions will continue to be paid as usual during this period.
“The trustees have worked with our specialist advisers throughout this process, 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 detailed information about the CVA process, and we will continue to keep them informed.”