The 22nd of March will be a critical day for JJB Sports as the creditors will vote to approve the company voluntary arrangement that KPMG has proposed. If successful JJB Sports will need to close 43 stores, with a further 46 that could be closed in the next two years, in order to survive. The support of landlords is viewed as crucial to get the vote through by passing the magic 75% of creditors by value test.
In order to sweeten the deal, the CVA proposes that the landlords will receive 50% of the rent after the stores close until the landlord can find another tenant. Nice in principal but not sure how workable that is if the stores remain unlet. Also the landlords will get a higher dividend if the company makes more money in the next 2 years. This "profit ratchet" has been part of all our CVA's for many years. It is our view that if the creditors support the company in difficult times then they should share in the upside.
UK head of restructuring at KPMG, Richard Fleming, said: "The CVA proposed by JJB today gives the company a chance to avoid administration and carry out a fundamental restructuring of its property portfolio. A CVA must always offer a better return to creditors than administration and in the case of JJB we estimate the return to compromised landlords to be within a range of 24.6p to 29.2p in the £1 versus 1.1p in the £1 in administration."
It is more often than not that a CVA will get more in the pound than an administration process for unsecured creditors. So it is our view that it is not being used enough! Hopefully if this CVA works then it will be to the economy's benefit and save jobs.