Carpetright has secured emergency capital to tide it over as it sets about restructuring the struggling business.
The flooring specialist is taking a £12.5m unsecured loan, with an interest rate of 3%, from Meditor European Master Fund – a “substantial” shareholder in the group. The repayment date is set as August 31.
The retailer added that, following a CVA, it intended to raise between £40m and £60m via an equity issue. The money would be used to fund its strategy, reduce debt and cover the costs of the CVA.
The retailer is also currently negotiating with lenders on relaxing its covenants and extending its facilities.
It anticipates that a renovation is dependent on landlords approving a CVA.
Carpetright boss Wilf Walsh said: “The aggressive store opening strategy pursued by the company’s previous leadership has left Carpetright burdened with an oversized property estate consisting of too many poorly located stores on rents which are simply unsustainable.
”The company has worked hard over recent years to address this legacy issue and reduce the size of its property estate, however many of these poor performing stores still have long leases to run, which has limited our ability to exit a meaningful number in the short-to-medium term.
“While the board is confident that its brand investment and store refurbishment strategies have been, and will continue to be, successful in enabling Carpetright to respond to increased competition, it believes additional measures are necessary to directly address this legacy property issue.
“The Board is therefore exploring the feasibility of a CVA in order to expedite the rationalisation of its property portfolio, with the clear objective of establishing a right-sized estate of contemporary stores, on economic rents, complemented with a compelling online offer.”
He added that, in the interim, it is “very much business as usual” for all its stores.
Carpetright, which has issued three profit warnings since December, has been hit by a double threat of rocky consumer confidence on big-ticket items and competition from the likes of market insurgent Tapi Carpets.