Sports retailer JJB Sports has confirmed it is to attempt a second Company Voluntary Arrangement (CVA) to ensure the survival of the business.
The troubled retailer said it had an “open and constructive dialogue” with its major landlords, which together account for about 40% of the retailer’s annual rental payments, regarding the future shape of the group’s property portfolio.
Future of JJB ‘depends on CVA’
The retailer said its future viability was “dependent upon the successful implementation of a CVA”.
JJB said that if it did not secure its £30m fundraising proposed last week and the CVA it would “no longer be able to trade as a going concern which would result in the appointment of receivers, liquidators or administrators”.
JJB’s review has identified up to 45 stores which are under-performing and which the board does not believe can form part of the group’s property portfolio going forwards.
It has also identified a further 50 stores which are currently under-performing but which “have the potential to form part of the core group of properties”.
JJB said it intended to keep these 50 stores under review for a period of up to two years. JJB regards 150 of its stores as core to the group’s future.
CVA’s success uncertain
The success of the potential CVA is uncertain. Landlords said this week that they would be wary of backing a further CVA.
The CVA would be JJB’s second within two years. Restructuring firm KPMG - which carried out JJB’s first CVA in April 2009 - has met with landlords since the end of last week to discuss options.
Some landlords said they would not support another CVA because the property market has picked up since 2009 and they believe they could re-let the stores. They are also likely to balk at the terms of the potential CVA - it is understood that only landlords are being asked to take a hit, while other creditors such as suppliers Nike and Adidas are protected.
JJB warned last week it was in danger of running out of cash by April and its like-for-likes had plunged 11.5% in the five weeks to January 23. The 250-store retailer, which is in talks with rival JD Sports about a sale of the business and is conducting a fundraising, has to present a new business plan to its banks on February 24.
CVAs have proved controversial with landlords as they feel they have no option but to vote them through or face an empty store. In its first CVA, JJB shut 140 stores.
Landlords: ‘Once bitten twice shy’
One big landlord said it was “unlikely” to back a second JJB CVA. He said: “Most people are saying once bitten twice shy.”
Another property source said the idea of a second CVA is “gobsmacking”. He said: “The first one served a purpose. But now the market is in a better place. They will get very little support from landlords.”
Another landlord said while they would not be “slamming the door in their faces”, they would be “more sceptical the second time round. We will be asking what makes this one different from the last one”.
The terms of the CVA include the closure of the 45 underperforming stores in the next 12 months, an agreement on a review period of the remaining stores, with an option to close up to a further 50 in the next 24 months. It also wants to pay rents monthly, as opposed to quarterly.
The retailer said it would continue to pay rates on closed stores in the period up to the first break date under each lease. It also wants a rent reduction on those stores that it plans to close.
JJB needs to obtain approval from 75% of its unsecured creditors to achieve the CVA. Details will be sent to creditors this month.
It said that the restructuring would be dependent on both a further equity capital raising and the continued provision of banking facilities.
JJB Chairman Mike McTighe said: “We have today announced key details of the proposed restructuring of our store portfolio, one of the crucial steps in restructuring JJB. The board and management team are working urgently on a fundamental restructuring plan which will significantly strengthen JJB’s finances and build on the Group’s strengths. We are confident that, with the support of our key stakeholders, we can complete this restructuring in the coming weeks.”