Moody’s judges House of Fraser to be in “technical default” on loans

House of Fraser landlords

Leading credit ratings agency Moody’s has judged House of Fraser to be in technical default on its loans.

In an investors’ note sent yesterday, Moody’s also warned clients that the outlook for the beleaguered department store’s rating remained negative, making it harder for the retailer to borrow money.

Meanwhile, fellow ratings agency S&P on Monday said new debt arrangements agreed by House of Fraser last week were also “tantamount to a default.”

In December, Moody’s first downgraded House of Fraser’s status to “very high credit risk” due to consistently weak performing sales.

The warnings come as House of Fraser scrambles for £50 million in new funds to meet its quarterly rent bill of nearly £25 million in late September and to make sure there is enough stock for the upcoming Christmas trading period.

The department store also wants around £10 million to pay down an expensive short-term overdraft.

This followed the embattled retailer securing a court order to be able to add £50 million more in debts and extend the deadline for repayment of a string of loans.

Since then, bankers acting for House of Fraser have reportedly held talks with executives representing Mike Ashley – who already has an 11 per cent stake in the department store – and asked them to consider providing a £50 million loan.

The founder and chief executive of Sports Direct bought his 11 per cent stake in 2014, when 89 per cent of House of Fraser was sold to Nanjing Cenbest, part of Chinese conglomerate Sanpower, in a deal worth £480 million.

Ashley’s potential rescue follows revelations that House of Fraser’s promised £70 million investment from Chinese investor C.banner would be delayed due to the legal action filed against it by unhappy landlords.

C.banner’s much-needed cash injection was conditional on the approval and implementation of House of Fraser’s CVA, which includes plans to close down 31 of its 59 UK and Ireland stores, reduce rent on 10 that will remain open, and slash 6000 jobs.

The Chinese firm’s investment also meant it would purchase a 51 per cent stake in the department store chain from current majority owner Nanjing Cenbest.

C.banner has now indicated it would now delay its promised investment until October 31 due to the landlords’ legal challenge of House of Fraser’s controversial CVA, which was approved by creditors last month.

The consortium of landlords taking the department store retailer to court allege that they have been treated unfairly from the CVA and a rescue attempt could be scuppered if their legal challenge was successful.

According to the Guardian, House of Fraser has since filed a challenge, arguing that the landlords had misunderstood the C.banner deal and wrongly they would be better off if they went into administration rather than a CVA process.

House of Fraser chief executive Alex Williamson previously described the retailer’s CVA as its “last viable” option to stay afloat.

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