Debenhams completes £200m refinancing, restructuring imminent

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Debenhams refinancing
// Debenhams confirms completion of £200 million refinancing
// Will now fall into the hands of lenders unless Sports Direct makes a firm offer for Debenhams shares, or underwrites a rights issue, or provides debt funding for the company
// Comes hours after Mike Ashley said Debenhams’ advisers should be “put in prison”

Debenhams has confirmed that it has completed a £200 million refinancing, dealing another major blow to Sports Direct chief executive Mike Ashley.

The refinancing provides the beleaguered retailer with facilities of £101 million and £99 million, and includes the £40 million to replace the interim borrowing it announced in February.

It said the first facility of £101 million will be drawn down immediately.

Debenhams – which has been trying to fend off moves by Sports Direct, its largest shareholder, to take control – said it would now move to the next stage of its restructuring, which includes reducing rents and closing stores.

The second facility will only be made available if Sports Direct – or any other shareholder with a stake of more than 25 per cent – agreed to participate in a “comprehensive solution” to secure the future of the department store.

However, they needed to meet one of two conditions by a deadline of April 8.

Under one option, Sports Direct can make a firm takeover offer which includes arrangements to refinance the group’s debt.

Alternatively, it can cancel the emergency shareholder meeting it requested to install Ashley on Debenhams’ board and commit to either providing funding for the business or underwriting the issue of new shares.

Debenhams said it would contact Ashley to gauge his interest.

If neither option is agreed by the deadline, Debenhams will only be able to access the remaining £99 million facility “upon transfer of those subsidiaries into the ownership of a lender-approved entity”.

This means Debenhams would hand over control to its lenders, effectively wiping out all shareholders – including Sports Direct’s near-30 per cent stake.

“This outcome would ensure the stability and continuing trading of the group’s operating subsidiaries, with no disruption to the group’s business, customers, employees, pension holders, suppliers or operations,” the department store said in a statement.

“However, it would very likely result in no equity value for the company’s current shareholders.”

Debenhams chairman Terry Duddy said: “We are pleased to have agreed this comprehensive funding package which secures the future of the Debenhams business and provides reassurance for Debenhams’ employees, pension holders, suppliers, lenders and other stakeholders.

“We have also preserved a route for our shareholders to participate in the future of the business, but this requires the support of our major shareholder.

“We will now move to the next phase of the restructuring of the business, which includes reducing rents and reshaping our store portfolio, as we have referenced in previous announcements.

“These actions are necessary to ensure the strongest possible platform to support the business going forward.”

Debenahams’ announcement today highlighted that it had undertaken a review of its store estate in the context of the current and future retail environment and plans to proceed with a restructuring that, should it be approved, will result in a significant overall reduction in its rent burden.

In late 2018, the department store announced plans to close around 50 stores over the next three to five years, and implementing this was linked to the £200 million refinancing.

No stores are expected to shut down before Christmas, and Debenhams would only undergo this process through negotiations with landlords or a possible CVA.

Debenhams also acknowledged it had received a number of proposals from Sports Direct recently – including a £150 million loan – but concluded that “none of these have provided or been compatible with a comprehensive solution”.

It added that the possible £61.4 million takeover deal announced by Sports Direct earlier this week “did not provide a solution to the group’s immediate working capital needs”.

Ealier today, Ashley lashed out at Debenhams’ advisers after bondholders initially approved the refinancing scheme yesterday.

“Now the results of the vote are known and we have also been subsequently advised that the supportive HSBC are no longer part of Debenhams’ revolving credit facility, I think that, if there were any justice in the world, the majority of the advisers would be put in prison,” he said.

FTI Consulting has been working with lenders to Debenhams, while KPMG has been advising the retailer itself.

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