Pre-pack administration now on the table for Debenhams

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Debenhams pre-pack
// Debenhams is now reportedly considering a pre-pack administration as an option
// The department store is in the midst of a refinancing campaign to keep it afloat
// Pre-pack option is thought to have been prompted by Sports Direct’s takeover campaign

Debenhams is reportedly eyeing a potential pre-pack administration as a way to save the business and stave off a takeover campaign led by Mike Ashley and Sports Direct.

According to The Sunday Times, the pre-pack option is said to be a fall-back option amid growing boardroom tensions between Sports Direct and Debenhams.

A pre-pack administration is an insolvency process that a company entering administration and then selling it immediately to a connected party, such as a lender, while shedding most of its liabilities.

Pre-packs also do not require shareholder approval.

The news comes as Debenhams continues negotiations with lenders to secure a £150 million lifeline to help keep the department store retailer afloat. It recently confirmed it was in advanced stages.

If successful, a pre-pack administration may not be necessary as the retailer would then be able to explore other refinancing options for its remaining debt.

Sources speaking to The Sunday Times said the main focus was to lock in a deal with lenders before it meets with Sports Direct, its biggest shareholder, next month.

Debenhams has not commented on the news.

Last week, the department store said it would consider a proposal from Sports Direct to provide a £150 million unsecured loan, in exchange for installing Ashley as Debenhams’ new chief executive.

The proposal came less than 24 hours after Sports Direct revealed it had flagged department store to the Financial Conduct Authority and publicly accused it misleading the market on its communication of the health of its finances.

Debenhams has since denied it had misled the market.

In February, the embattled department store secured a short-term cash injection of £40 million after lenders agreed to extend its overdraft limit as it sought refinancing to secure its future.

The current negotiations for a further £150 million comprises of £40 million that would be used to refinance the £40 million cash injection it received.

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 January, it said it had a net debt of £286 million.

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6 COMMENTS

  1. All the rats what have damaged the business are trying to save their high paid jobs before Ashley comes along and cleans them all out.

  2. I can’t believe Ashley is getting away with causing all these problems for Debenhams instead of letting the management concentrate on running the business. They have a plan, and a lot of staff are behind what they want to do to revive the company.
    Its very hard to stay positive with all this persistant negative media. Sergio needs time.

  3. Private equity firms overexpanded Debz and loaded it with debt. There should only be about 50 stores. When it collapses Ashley will get lots of bad press when really none of its woes are his fault. I don’t think he should buy it though as HoF still needs attention from its run of previous mis-management resulting in no Autumn/Winter stock 2018/19 resulting in under stocked stores. He saved HOF but it has a long road ahead of it.

    Sports Direst owns so much now, it needs to rationalise the businesses and give it some better direction. If Debenhams is added it will lumber the business with two huge department chains with massive stores right next-door to each other in many towns and cities around the country that are an obvious clash and will result in huge empty stores.

    With the collapse of BHS and the out of date looking Arcadia brands looking to reduce stores, more vacant department stores will decimate some places in the UK

  4. I agree, a deaf, dumb and blind person without the huge salaries these people get, couldn’t have done a worse job.
    You really have to be a financial genius to lose so much money.
    If you sat all the directors over a pavement drain and asked them to stuff £50 notes down as fast as they could, they still couldn’t come near the damage they have done. NJ

  5. Actually the huge part of the loss is caused by writing down the goodwill loaded onto the company by previous PE owners.

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