Debenhams shares jump as struggling department store secures a vital £40m lifeline from lenders
- Cash injection is a temporary reprieve before rent payment is due on March 25
- The 12-month deal amounts to £40m of extra headroom on its existing facility
- It also announced a sourcing partnership with supply chain firm Li & Fung
Debenhams shares jumped this morning after the struggling department store secured an extra £40million of funding from its lenders.
The cash injection is a temporary reprieve that should cover a major rent payment is due on March 25.
The company said this new 12-month credit facility will allow it to continue trading while it works out a longer-term refinancing and recapitalisation package.
Shares in Debenhams, which have dwindled to just a few pence as the chain hit the skids, jumped 40 per cent to 4.4p on the news.
Cash injection: The 12-month extension of the loan facility should cover a major rent payment is due on March 25
‘The new facility agreement, which contains provisions for a step-up in pricing during calendar Q2, will act as a bridge to facilitate a broader refinancing and recapitalisation,’ the retailer said in a statement.
‘In this context, we are continuing to engage constructively with our stakeholders, and intend to conclude a comprehensive refinancing by the end of this period. A further update will be provided in due course.’
The High Street issued three profit warnings last year and has £286million worth of debt.
Debenhams is also working on a controversial Company Voluntary Arrangement (CVA) which would allow it to negotiate chunky rent reductions with landlords and axe a number of stores.
Debenhams is looking to shut 20 shops by the end of 2019 but the total could rise to 90 in the coming years.
Today’s cash injection ends months of uncertainty over the company’s finances, which led to Sports Direct boss and Debenhams shareholder Mike Ashley saying the firm had little chance of survival.
Ashley’s offer of a £40million loan was turned down on the basis that his terms would affect other shareholders.
Ashley holds a near 30 per cent stake in Debenhams.
Separately, Debenhams announced on Tuesday that it has reached an agreement with supply chain manager Li & Fung to oversee some of the chain’s sourcing. The Hong Kong-listed firm was described by Mr Bucher as being a ‘key part’ of the Debenhams turnaround plan.
Billionaire Mike Ashley holds a near 30 per cent stake in Debenhams
Chief executive Sergio Bucher said: ‘Today’s announcement represents the first step in our refinancing process.’
And in regards to the company’s partnership with Li & Fung, he said: ‘This will help us anticipate and respond more quickly to trends and our customers’ preferences, as well as delivering better quality product.’
Neil Wilson, analyst at Markets.com, said the worry is that Debenhams is now living ‘hand to mouth’.
He said: ‘Debenhams shares jumped as the company secured fresh credit from lenders but is this a stay of execution or a genuine lifeline?
‘Nevertheless, this is an important step towards that refinancing deal and should help management to navigate what is going to be a very tricky few months.
‘Disposals, esp Magasin in Denmark, are certainly on the cards, as well as store closures in the UK. It would appear this extra facility will cover the rent payment due the end of March, but we also need to see progress on a proposed CVA to deliver an accelerated store closure programme.’
Laith Khalaf, senior analyst at Hargreaves Lansdown said: ‘This debt agreement is a lifeline for Debenhams, but isn’t going to solve its fundamental problems.
‘Trading conditions remain extremely challenging, and the business has a tightrope to walk between cutting costs and investing in improvements. All this when major shareholders voted against the re-election of the Chairman and CEO at the recent AGM.’