Debenhams calls in administrators, operations sold to lenders

9th Apr 2019 12:21

(Sharecast News) - Debenhams called in the administrators just before midday on Tuesday, with the entire underlying operating company immediately sold to the departments store group's lenders.The lenders of the group's £720m of debt, include Barclays, HSBC and hedge fund Silver Point, earlier rebuffed a last-minute proposal by Sports Direct boss Mike Ashley to underwrite a £200m rights issue.Sports Direct had also mooted a possible 5p per share takeover offer last week but on Tuesday afternoon said it does not intend to make a firm offer.As part of a 'pre-pack' administration deal, the Debenhams holding PLC will fold but its lenders have bought all 165 stores, plus the commercial relationships with suppliers, employees, pension holders and customers, slotting them into a newly created vehicle called Celine UK Newco. This business will have access to the £200m of new funding agreed last week."The transaction delivers continuity for all group operations and was in the best interests of the group's creditors, employees, customers, pension holders and suppliers," Debenhams said in a statement.The total cost of the deal for the lenders was almost £622m, with £101.8m paid for the group and £520m of debts and pension obligations taken on, according to documents released by administrators from FTI Consulting.Under the new owners, the operations will be further restructured, with management last month expecting to shutter 50 stores and cut rents to try and turn around its performance.Debenhams shares, having crashed more than 97% over the past three years from 80p to less than 2p amid a recent succession of profit warnings, were suspended before trading began on Tuesday and are expected to be cancelled on Wednesday.The company said it had "fully considered" Sports Direct's several conditional proposals, but "none were deemed deliverable given conditionality, timing and other stakeholder obligations and considerations" and so the administrators were appointed, who swiftly decided that the pre-packaged deal "was in the best interests of the Plc's creditors" and would minimise business disruption and provides ongoing access to funding for the operating businesses and other connected parties.Terry Duddy, Debenhams' chairman, said: "It is disappointing to reach a conclusion that will result in no value for our equity holders."However, this transaction will allow Debenhams to continue trading as normal; access the funding we need; and proceed with executing our turnaround plans, whilst deleveraging the Group's balance sheet."We remain focused on protecting as many stores and jobs as possible, consistent with establishing a sustainable store portfolio in line with our previous guidance."Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "It's game over for Mike Ashley and Debenhams shareholders. The writing's been on the wall for some time now, and while Sports Direct persisted with attempts to rescue the retailer, its terms proved unacceptable to Debenhams and its lenders.With Debenhams one of the most shorted shares on the UK stock market, Khalaf said the hedge funds who bet against it "have now recorded a maximum win, the shares cannot fall any further".He said Ashley would have needed to pay off large chunks of the retailer's debt in order to take control, which seemed "a hefty price tag to stump up for a company that's struggling to make ends meet", noting that its gross margins had shrunk from 19.4% in 2006 to 10.2%.With the majority of Debenhams' sales generated from its clothing division, analyst Sofie Willmott at GlobalData said its high street competitors "must be ready to take advantage and swoop in to capture the physical spend that Debenhams will miss out on".She said Marks & Spencer's clothing offer was "unappealing" and felt Next and Primark are best positioned to benefit from Debenhams shutting locations.