Focus DIY’s proposed company voluntary arrangement (CVA) will be well received by creditors, according to analysts and landlords.
The struggling DIY retailer has initiated the CVA in order to rid itself of 38 “dark” – non-trading – stores, a condition imposed by its lenders if they are to renew Focus’s two-year revolving credit facility. The banks have agreed in principle to the deal.
As revealed by RW Online (August 3), Focus unveiled its CVA plan to creditors on Wednesday, and a decision is expected on August 24. If successful, the CVA will save the retailer £8.6m of its present £12m-a-year bill for the shops.
Focus chief executive Bill Grimsey said he has received a “very positive” reaction from suppliers and landlords. “We have to deal with the dark store situation, it’s a no-choice option for Focus. But it’s business as usual,” he said.
Numis analyst Nick Coulter believes the CVA has a high chance of success, given that the alternative would be an administration.
He said: “Freed from the cash drain from its dark stores, Focus will represent a more efficient competitor.” Coulter also highlighted the “impressive” performance of Focus’s trial Genesis stores.
Ben Grose, asset manager for retail warehouse properties at British Land – which owns five of Focus’s profitable stores – is supportive of the CVA. He said: “It’s backed by a very credible management team. This gives us the confidence that there is genuine longevity in the brand. It’s a pretty fair deal. The alternative is administration, which would result in the landlords getting nothing.”
Focus wants to get out of paying rent, service charges and insurance on the stores. In return, the landlords would receive a dividend, expected to be, on average, the equivalent of six months’ rent – about £4m – to be paid next year.
Focus would continue to pay business rates on the properties until the landlord surrendered the lease or assigned it.