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Landlords may rally against Monsoon CVA

Landlords are showing resistance to Monsoon Accessorize’s company voluntary arrangement proposal, which asks for rent reductions of up to 65% across more than half of its stores, property sources have told Drapers.

The CVA proposal outlines rent reductions of between 25% and 65% across 135 out of a total 258 Monsoon and Accessorize stores. No store closures have been proposed, but the retailer is seeking to exit at least seven Monsoon stores.

Landlords have been offered up to £10m as part of a profit-sharing scheme if, following a successful CVA, Monsoon Accessorize trades profitably and above forecast.

“I’m hearing quite a bit of resistance from landlords,” said one source close to the situation. “They want more clarity around what the profit-share deal really means.

“Landlords don’t want to see CVAs used for inappropriate purposes, and having an equity stake and claim over future profits at least makes the deal feel as if there is some sort of balance,” he added.

The CVA proposal, seen by Drapers, outlines an expected EBITDA loss of £3m across the businesses for the 2018 financial year, and a fall in revenue of 3.2% to £358m.

A syndicate of landlords, advised by PJT Partners, was established for Arcadia’s CVA negotiations. It is understood that the group has grown for the Monsoon deal.

“They saw that acting collectively got them some improved terms on Arcadia, so they are now more aware that acting together will be helpful for their cause,” said one source.

As landlords face an increasing deluge of CVAs, another property source suggested they may begin to take a blanket approach in their voting.

“Intu voted against Arcadia’s CVA, [and it may] take the same stance [for Monsoon],” he said. “Will it be the case that we see a rise of the ‘moral conscience’ vote going forward, where businesses take a stance that they don’t support any CVAs?”

Other sources said similarities between Monsoon’s and Arcadia’s CVA proposals could result in further resistance.

“It’s got quite a lot of similarities to the Arcadia CVA – with a relatively big personality who has taken a large sum of money out of the business,” said one property source. “There is a degree of resistance around supporting a CVA from another retailer.”

A source close to Monsoon said: ”It is wrong to compare Monsoon and Accessorize with Arcadia given that, unlike Arcadia, Monsoon and Accessorize have no debts and no pension liability.

”Over the past few months, Monsoon and Accessorize’s management has engaged extensively with a number of its landlords and other key stakeholders in advance of launching these proposals. As a result of feedback from these discussions, the Companies improved the terms of the proposals to ensure all stakeholders are aligned to support the business in its return to prosperity. These proposals include improving the terms of the profit-sharing scheme in recent weeks from 15% to 25%, if the Companies trade profitably and above forecast in future years (up to £10m).”

Peter Simon, Monsoon’s owner and sole shareholder, was paid dividends of £21m in 2014. He has not taken personal dividends for the past five years.

Another insider added: “It could be the case that landlords feel [the CVA] is happening a bit earlier than it needs to be, as [Simon] has said relatively recently and publicly that it’s a business without debt and is fairly profitable.”

However, in its proposal, the company warned that if the CVA is not approved “it is likely [it] will no longer be able to trade as a going concern, which could result in the appointment of administrators or liquidators to the company.”

One property source said: “The way forward is dialogue. Anyone planning [to launch a CVA] has to go and sit down with their landlords sensibly, with an open-book policy, and say, ‘We need to have this conversation, rather than a conflict.’ That needs to be the default.”

Partner at Deloitte, Ian Wormleighton, added: “We have supported the Group in its engagement with key stakeholders ahead of today’s announcement and believe that these CVA proposals strike a fair balance between the concerns of key stakeholders and the essential requirements to restructure the business.”

 

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