Debenhams Plc (DEB) is an international retail brand based out of the UK. The company is having 240 physical stores and an online presence in over 90 countries. The company is having an employee base of 26,000 colleagues serving 19 million customers from all across the globe. The company operates its business based on wholesale and franchise models. Presently the company is having over 50 designer brands under its name.
The companyâs sale process ended and was not able to attract any buyer and it provided creditors with full control over the company. In April, the Debenhams entered into pre-pack administration and passed the ownership of two operating companies to its lenders. The companyâs marketing activities were taken cared for by FTI Consulting and Lazard, the investment bank, had taken charge of administrative activities of the company.
As per the administration documents formed by FTI, any prospective purchaser had to immediately refinance the companyâs indebtedness over Â£500 million which also includes Â£200 million of bonds and companyâs existing revolving credit facility.
Sports Direct (another retail chain) in the last couple of months is trying hard to install its Chief Executive Mike Ashley into Debenhams as Chief Executive. Debenhams was offered Â£150 million interest-free loan by Sports Direct and in return, the Sports direct will get 5 per cent additional equity. But after all the efforts went into the vein, they offered Debenhams a Â£61 million to purchase remaining 70 per cent equity. Sports Direct already owns 29 per cent of Debenhams.
Management of both the companies went into conflict and had wide trust issues. Debenhams is afraid that once Mr Ashley of Sports Direct gets the full control of the company, he would default on the promised Â£150 million.
The Debenhams have already agreed with the creditors another refinancing plan which will enable creditors to control the assets of the company. It will also raise spare funds of Â£100 million. In order to accept the offer of Sports Direct, Debenhams needs the approval of its creditors.
Debenhams is working on changing its capital structure as per most of the observers. The refinancing would comprise a debt for equity swap, a new share issue and possibly a voluntary arrangement to reduce lease obligations.
Debenhams is intended to close its 22 least profitable stores in January 2020 and will be paying reduced rents on other more than 100 stores as per the voluntary arrangement. The companyâs operations were affected by the low consumer spending which is followed by huge discounts provided by the company. The payment of high rental costs and lease agreement further hampered their earnings.
The creditors of the company are due to vote over the sale agreement, and the company required 75 per cent of creditors vote as an approval to proceed. Debenhams were given opportunities to save itself number of times. Sports Direct first offered then an interest-free loan which the company refuse to accept. Sports Direct again came up with an offer to buy the companyâs remaining equity, but Debenhams choose debt refinancing and turned down the offer.