Debenhams suppliers have told Drapers they have been “left in the dark” and fear for the future, as the department store chain prepares to restructure, which may result in a pre-pack administration.
Debenhams has agreed a £200m refinancing deal with its existing lenders. The struggling department store chain received the first facility of £101m last week. The remaining £99m is conditional on Sports Direct – which owns 29% of Debenhams – or another major (25%-plus) shareholder making a “firm and binding offer” for the retailer, 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.
If neither happens by 8 April, Debenhams will enter a pre-pack administration.
In a statement Debenhams said: “The transfer of our subsidiaries into the ownership of a lender-approved entity [a pre-pack] would ensure the stability and continuing trading of the group’s operating subsidiaries, with no disruption to the group’s business, customers, employees, pension holders, suppliers or operations. Suppliers would continue to be paid as usual.”
However, suppliers have called for clarity from Debenhams.
“Suppliers are worried because once the credit insurance disappears, there is no guarantee that they will be paid,” said one supply source. “They haven’t been made aware of what’s going on and feel left in the dark about the situation.”
The managing director of one brand stocked by Debenhams said: “Everybody is nervous. None of us suppliers know what’s going on. Debenhams recently changed its name at Companies House [to prepare for the possible pre-pack administration]. When we asked about it, the buyer didn’t know anything about. It was worrying.”
Another supplier to Debenhams said: “All payments have been made on time so far. I hope that Debenhams will try to support suppliers going forward, otherwise we won’t supply to them.
“I’ve been trying to get answers but haven’t heard anything from Debenhams. I’ve been left in the dark and I don’t know if we will get paid [if there is a pre-pack administration]. I’m certainly more worried now than I was last week.”
The managing director of one fashion supplier said: “As a company we work closely with Debenhams to try to have continuity of trade. But with credit limit problems and historic situations, such as the recent House of Fraser administration, [continuity of trade] is not easy, as we all want to limit our risk.”
One footwear source said: “I’ve heard nothing from Debenhams. We will not be delivering anything else until we have clarity on the situation.
“The challenge is if lots of people stop supplying Debenhams because they are worried about being paid. It means the stores won’t have enough of the right product and will ultimately go under.
“My gut instinct is that Ashley will take charge. I think it would benefit Debenhams if he was CEO because he has the power and financial clout to keep it running, and the infrastructure for sourcing own-label items. While lots of people are anti-Ashley, it would put Debenhams on a sound footing.”