Debenhams Goes Into Administration

Written by Robert Moore Marketing Manager 9 April 2019

Could Debenhams go into administration?

Update : 9th April 2019

There has been much in the news about Debenhams and their chance of falling into administration.  Today it has happened in that the company has now gone into administration and is in the hands of its lenders. 

Mike Ashley's deal of £200m was not accepted so lenders are now in control of the business, wiping out the shareholders. 

The £560m debt is being called. With almost £3bn pounds of sales last year, the company's shares have been suspended.  It is expected that about 50 stores will close and there will be negotiations with the Landlords to reduce rents. 

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Recently they have found a lifeline. Lenders have secured a £200m refinancing deal. This ensures reassurance for employees, pension holders, suppliers and lenders. 

£99m is still remaining to be raised and depends on the outcome on the 8th April. Either Sports Direct (or a majority shareholder with over 1/4 of the company's shares) offers the retailer the refinancing for the debt or Sports Direct can drop its attempt to remove all but one of the board, agreeing to underwrite a rights issue or provide funding on agreed terms of the other lenders. However, if neither of these happen, its believed the funds will only be available when lenders take over the business. 

Sports Direct and owner Mike Ashley, have already made attempts to take control of Debenhams, yet have been turnt down. The reasoning for being declined is said to be that the proposals have not been compatible or provided a comprehensive solution.

Debenhams future lies in the hands of Mr Ashley...does he watch his stake in the retailer disappear? or does he input cash, to keep the company alive? Watch this space... 


Update:  The rent quarter day bill of £50m is due on the 25th of March and if the company can't secure a £150m loan then it may be forced into administration.  Mike Ashley has offered it on condition of having a seat on the board.  This has been rejected.  It is possible that Debenhams will go into a pre pack administration and be sold to the lenders. This will wipe out shareholders and shake off Mike Ashley...  Is it the right thing to do?

The retailer reported a sharp fall in sales during the crucial Christmas trading period and ever since it has been reported that it is on the brink.  It has been suggested that as many as 90 stores could close with the loss of 10,000 jobs.

Debenhams said customers had been seeking discounts and left their shopping late. It said sales fell 5.7% in the 18 weeks to 5 January.  The Chairman, Sir Ian Cheshire, has been ousted by the board in a coup by Mike Ashley.  This has hit the share price further which is at record low of 3.5 pence (14th Jan)

House of Fraser has all but gone from the High Street, as Mike Ashley closes more stores and it doesn't look like Debenhams is picking up their trade.   The thing is that Debenhams is making an operational proft, it just isn't much considering how large it is with  27,000 employees.  It used the last results to make a one off write down that hit the share price. 

Mike Ashley could possibly buy Debenhams in a Pre Pack Administration if it faces a cash crunch.  Credit insurers have withdrawn support for suppliers but, this is not uncommon in retail at the moment. However, a recent report by Sky says that the lenders to the firm have appointed FTI Consulting to look at restructuring.  Although they are not Insolvency Practitioners it does show the level of concern by their lenders.  A Company Voluntary Arrangement is a possible outcome.

Sales figures on the High Street continue to disappoint and if Brexit uncertainties carry on then Debenhams will face further pressure.

However, it should be noted that it is not in the same precarious position as House Fraser in relation to debt.  House of Fraser had £1bn of debt which was clearly unsustainable..

Also, you can't get everything in Debenhams cheaper online as it has more own brands and collaborations with designers than House of Fraser.

Categories: Retail, What is administration, Pre Pack Administration Process and Procedures

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