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Debenhams secures temporary lifeline

Debenhams has agreed a £200m refinancing deal with its existing lenders that leaves the door open for Sports Direct to formally table an offer for the business. 

The struggling department store chain expects to receive the first facility of £101m today. 

The remaining £99m is conditional on Sports Direct or another major shareholder making a “firm and binding offer” for Debenhams, which must include an agreement to refinance its group debt, amounting to £560m.

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 retailer. 

If neither happens by 8 April, Debenhams will enter a pre-pack administration.

Debenhams said: “By entering into the facilities there is provision for Sports Direct to participate in a comprehensive solution, and we will be contacting Sports Direct to outline once again the terms on which their constructive participation would be possible.”

Debenhams will begin its store portfolio restructuring after Christmas. This will take up to three to five years and involve 50 stores, as previously announced. 

Terry Duddy, chairman of Debenhams, said: ”We are pleased to have agreed this comprehensive funding package which secures the future of the Debenhams business, and provides reassurance for Debenhams’ employees, pension holders, suppliers, lenders and other stakeholders.

“We have also preserved a route for our shareholders to participate in the future of the business, but this requires the support of our major shareholder.

“We will now move to the next phase of the restructuring of the business, which includes reducing rents and reshaping our store portfolio, as we have referenced in previous announcements. These actions are necessary to ensure the strongest possible platform to support the business going forward.”

Earlier this week, Sports Direct said it would consider a possible cash offer of £61.4m for Debenhams. The offer was conditional on the appointment of Ashley as the department store chain’s CEO. Debenhams would also have had to agree not to enter any third-party funding arrangements, including an administration or company voluntary arrangement.

The board of Debenhams has said none of Sports Direct’s offers to date are compatible with its restructuring.

This morning, Ashley lashed out at Debenhams’ advisers, arguing that ”if there were any justice in the world, the majority of them would be put in prison”.

A spokesperson from the Debenhams Pension Schemes said: ”We hope that the agreement will form the basis of a sustainable solution for the trading business that ensures that it will continue to support the pension schemes on a long-term basis.

“The trustees have worked with our specialist advisers throughout the discussions, 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.

 

 

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