// New Look announces CVA proposal & confirms financial restructuring
// Retailer seeks to move majority of UK stores’ rent to turnover basis to reflect market environment
// The CVA proposal does not affect New Look’s 11,200-strong workforce
New Look has launched a CVA proposal that entails switching more than 400 of its UK stores to a turnover-based rent model, and also confirmed a financial restructure to reduce its costs after sales were hit by the coronavirus pandemic.
Following advice from property agents and a thorough review of New Look’s store estate, the CVA proposal will categorise leases, with 402 leases being set at a turnover percentage of up to 12 per cent and the remaining 68 stores moving to nil rent.
Most retail CVAs tend to involve store closures and job cuts, but New Look’s proposal does not affect its 11,200-strong workforce nor does it suggest any sites will permanently shut down.
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While the vast majority of New Look’s stores have reopened since lockdown eased in mid-June, it recently reported a 38 per cent drop in like-for-like store sales due to the “continued impact of Covid-19 on footfall”.
New Look’s CVA proposal also includes enhanced landlord breaks for all stores, providing landlords with the opportunity to exit the lease if they believe they can identify an alternative tenant on improved terms.
Meanwhile, New Look will have no additional rights to exit the turnover-based rental agreements until the end of the CVA, and even then only in the event that the store is underperforming.
The proposal has been structured to ensure there are no proposed changes to service charges for stores on turnover-based rental agreements and includes the full settlement of service charge arrears across all categories of stores.
The CVA, if approved, is expected to last three years.
Minimum rents for New Look’s stores on turnover-based rental agreements in year two would be the equivalent to 85 per cent of year one rent paid, while minimum rents in year three would be the equivalent to 85 per cent of year two rent paid.
New Look said the CVA meeting date is scheduled for September 15 and approval requires a vote in favour by at least 75 per cent of unsecured creditors.
Daniel Butters and Rob Fishman of Deloitte have been appointed to act as nominees to the CVA.
Butters said: “The turnover rent model better aligns the risk and reward of trading during these uncertain times and the CVA, together with the wider-balance sheet restructuring, provides a stable platform upon which management’s strategy can be delivered.
“We have fully engaged with the British Property Federation and its members and their views are reflected in what we believe is a fair proposal to restructure the property obligations of [New Look].
“It is important to stress that no stores will close on day one, and employees and current suppliers will continue to be paid on time and in full.”
New Look used its CVA announcement to also confirm that it had been engaged in dialogue with its noteholders concerning a debt-for-equity conversion of the £440 million senior secured notes.
The fashion retailer said since talks started earlier this month, it has secured the consents so far of over 80 per cent of the noteholders.
The transaction will extend New Look’s facilities, deliver a new cash investment of £40 million, reduce secured debt by £440 million and significantly de-leverage the balance sheet.
New Look said this financial arrangement would provide it with “financial strength and flexibility to deliver a sustainable platform” for post-Covid trading.
However, the restructure is conditional on a rebasing of New Look’s UK leasehold obligations through the CVA.
“We are launching this CVA out of absolute necessity and are calling on our landlords to agree a turnover rent model for our stores which will put us into a position to be able to complete a financial restructuring agreed with our creditors that will secure the future of New Look and our employees,” New Look chief executive Nigel Oddy said.
“The proposal to landlords is to rebase our rental cost base through a turnover-based model that aligns future performance and reflects the wider retail market.”
He added: “We still fundamentally believe the physical store has a significant part to play in the overall retail market and our omnichannel strategy.
“We remain committed to the high street and serving our customers through our portfolio of local, conveniently-located stores in towns across the UK.
“However, the magnitude and speed of the shift in consumer behaviour and confidence nationwide requires a change in the way leases are structured in order to manage uncertainty so that stakeholders share both risk and upside, and to ensure continued business viability.”
Oddy also confirmed that New Look had been in discussions with landlords regarding a move to turnover-based rents since May.
“The proposal we have launched today would relieve the financial pressure on New Look as we navigate the post-Covid landscape, whilst also providing our landlords with greater flexibility over their rental arrangements and ensuring closer alignment of interests with regards to sales recovery,” he said.
“Together, the proposed CVA and the financial recapitalisation will provide the foundations for us to deliver our long-term strategic plans, safeguard over 11,200 jobs, and continue to build on the brand status New Look has built over the past 50 years as one of the UK’s leading womenswear retailers.”