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House of Fraser in debt talks with banks

House of Fraser is in talks with its lenders to renegotiate its banking covenants in order to fund the expansion of its own ranges.

The retailer wants to drive margins by introducting more house brands, which currently account for 10% of total sales at the business. It wants to generate up to a third of sales from the offer over the next three years.

The capital freed up within the business will enable House of Fraser to buy more stock next year to fund the growth, requiring its covenants to be reset.

Sales of house brands at House of Fraser rose 33% over the Christmas period at House of Fraser, while total sales were up 7.1% on a like-for-like basis.

The company is looking to reset both its cash cover covenant and the ratio of net debt to EBITDA.

The retailer has about £180m ($284m) of debt and has offered lenders an extra 1.25 percentage points of interest in the first year, which will be reduced to 1 percentage point thereafter.

It is understood that its lenders will support the new debt structure. House of Fraser needs the approval of at least 67% of junior and senior leaders in order to approver renegotiated debt terms before March 12. It has already secured the approval of 63% of its lenders.

House of Fraser was taken private in 2006 by now-defunct Icelandic investor Baugur.

Chairman of the 62-store chain Don McCarthy has a 22% stake in the business and Scottish investor Sir Tom Hunter also holds 10% stake. The 33% stake that Baugur owned was taken over by Icelandic bank Landsbanki following the administration of Baugur last year.

Last year the company paid down £20m of its borrowings.

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