Debenhams Lenders Offer Lifeline as Financing Revamp Sought

(Bloomberg) -- Debenhams Plc secured a lifeline from some of its lenders, giving the troubled U.K. department-store chain 40 million pounds ($51 million) in liquidity as it attempts a broader refinancing.

The company, which operates middle-market stores that anchor many of Britain’s malls, also struck an agreement with export and logistics company Li & Fung Ltd. on a sourcing partnership for Debenhams own-brand products. The deal will help the retailer anticipate trends more quickly and boost quality, Chief Executive Officer Sergio Bucher said in a statement Tuesday.

Debenhams is in talks with lenders and landlords as it struggles under about 360 million pounds of debt amid dwindling sales. The company issued three profit warnings last year and is closing stores as it’s caught up in the sweeping decline of the U.K.’s traditional retail hubs.

“The extra lending facility gives Debenhams breathing room, but its renegotiation of leases is seeming more difficult,” said Louise Parker, an analyst at Bloomberg Intelligence. “The company has been trying to negotiate rent reductions with its landlords for over a year and we have not seen any progress.”

Billionaire investor Mike Ashley, who has a stake in Debenhams, last month engineered a shareholder-vote coup in which he forced out Chairman Ian Cheshire and drove Bucher off the board. The new credit line provides the same amount of financing as Ashley offered to the company last year, which Debenhams turned down.

Rent Bill

A company voluntary arrangement, a U.K. court process that can allow insolvent firms to reach agreements with creditors, along with a debt restructuring may still be the only way for Debenhams to cut its onerous rent bill and remain current on its obligations, according to Parker. The chain plans to have refinanced by the end of the second quarter, according to Tuesday’s statement.

Debenhams shares rose as much as 49 percent in London, but the rebound comes after a multiyear plunge that’s cut their value by about 96 percent since May 2015. The company’s 200 million pounds of bonds due in July 2021 were little changed at 50 pence on the pound, according to data compiled by Bloomberg.

Some of Debenhams’s lenders and noteholders grouped together to extend the new secured facility, which will be available for 12 months. It will initially charge interest of Libor plus a 5 percent cash coupon annually, and will be secured over the assets of the existing guarantors of its revolving credit facility and notes. The company also agreed on a waiver and amendment of the terms of its existing loan to give it more room.

Investment funds including Alcentra, Angelo Gordon & Co., and Silver Point Capital bought tranches of the existing 320 million-pound facility from original bank lenders last year, people familiar with the matter said in October.

©2019 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.