If Debenhams cannot strike an agreement with top shareholder Mike Ashley, a pre-pack administration is likely.
Debenhams has organised a £200m refinancing but Sports Direct, its biggest shareholder, must accept key conditions. If it does not, a subsequent restructuring will wipe out shareholder value for Debenhams investors.
The conditions, which must be reached by April 8, include Sports Direct, or another shareholder holding 25% or more, making a firm and binding offer for Debenhams, which would safeguard lenders’ money and provide the department store group with sufficient working capital.
Alternatively, Sports Direct would have to agree to cancel its request for an EGM and either underwrite a rights issue or provide alternative funding on terms agreed by the retailer’s lenders and note holders.
If Sports Direct does not agree to either of those conditions, Debenhams would only be able to access the full funding if it entered a pre-pack administration and created a “lender-approved entity”.
Debenhams emphasised this option would not disrupt its “business, customers, employees, pension holders, suppliers or operations” but would “very likely result in no equity value for the company’s current shareholders”.
Separately, Debenhams will pursue its plan to close around 50 stores over the next three to five years, either through discussions with individual landlords or via a CVA. No stores will close before Christmas. The successful execution of this plan is linked to the provision of the £200m.
Debenhams chair 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.”