Debenhams secures £40m cash injection to ease funding crisis

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Debenhams cash
// Debenhams secures £40m short term cash injection
// New deal buys Debenhams extra time to secure longer-term refinancing
// Also provides ailing department store extra time to finalise store closure plan
// Comes amid increasing speculation that Debenhams will launch a CVA soon

Debenhams has secured a short-term cash injection of £40 million after lenders agreed to extend the retailer’s overdraft limit amid ongoing refinancing talks to secure its financial future.

The cash injection, in the form of a 12-month senior secured credit facility, buys the embattled department store chain extra time to secure longer-term refinancing and to finalise a store closure plan.

Without the extension of the overdraft limit, it would’ve risked breaching terms on its debt by the end of this month.

The process is also likely to see lenders take a stake in Debenhams.

The department store issued three profit warnings last year and in its full-year results, it unveiled a historic £491.50 million statutory loss and announced plans to close up to 50 stores within three to five years, putting an estimate of 4000 jobs at risk.

Debenhams currently has £520 million in debt facilities, including £320 million of loans and £200 million of bonds which are due to be repaid next year.

In addition, last month the retailer said it had net debt of £286 million.

Debenhams said the new funds announced today would “act as a bridge to facilitate a broader refinancing and recapitalisation”.

It added that a further update will be provided in due course.

“Today’s announcement represents the first step in our refinancing process,” Debenhams chief executive Sergio Bucher said.

“The support of our lenders for our turnaround plan is important to underpin a comprehensive solution that will take account of the interests of all stakeholders, and deliver a sustainable and profitable future for Debenhams.”

Debenhams also announced that it had entered an agreement in principle with Li & Fung, a supply chain solutions partner, to develop a strategic sourcing partnership.

This agreement is expected to cover a material part of the retailer’s own-brand sourcing over time and will deliver benefits for customers and stakeholders through improved product lead-times, margins and working capital efficiency.

“The partnership agreement we are announcing today with Li & Fung will be a key part of our turnaround plan,” Bucher said.

“It gives us access to state-of-the-art technology in the LF Digital platform, providing end-to-end visibility across our supply chain.

“This will help us anticipate and respond more quickly to trends and our customers’ preferences, as well as delivering better quality product.”

The news comes after recent reports that indicated Debenhams could accelerate its store closure scheme amid a potential CVA in the near future.

Last week, The Sunday Times reported that the embattled department store could launch a CVA proposal before the next rent deadline of March 25, which could include plans to shut down 20 stores this year.

However, this depended on the rent reductions it manages to achieve across its 166-strong store estate, as Debenhams had reportedly instructed property agents to determine the rent it should pay on its stores ahead of the rent deadline.

While department store already announced that 50 stores were set to close in the next three to five years, this could be sped up should a CVA go ahead.

Meanwhile, The Telegraph last week revealed that Debenhams was also eyeing the possibility of a debt-for-equity swap – a deal that New Look pursued earliet this year, which effectively saw the fashion chain handover majority ownership to bondholders as part of a refinancing agreement.

Sports Direct founder and majority owner Mike Ashley, who has a near-30 per cent stake in Debenhams, is reportedly in talks with the department store’s interim chairman Terry Duddy about being involved in the refinancing.

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