Debenhams has announced details of two proposed Company Voluntary Arrangements (CVAs) – one relating to Debenhams Retail, the main trading entity, and one relating to Debenhams Properties.
Executive chairman Terry Duddy says: "The issues facing the UK high street are very well known. Debenhams has a clear strategy and a bright future, but in order for the business to prosper, we need to restructure the group's store portfolio and its balance sheet, which are not appropriate for today's much changed retail environment. Our priority is to save as many stores and as many jobs as we can, while making the business fit for the future."
The group had previously outlined its Redesigned strategy, which details a smaller UK footprint with better-quality stores, and states that a CVA is a key step in delivering that strategy.
Debenhams says that the CVA does not seek to compromise the claims of any creditors other than certain landlords, local authorities and inter-company liabilities, while all trade suppliers and the entitlements of employees will continue to be paid in full during the process. The group has engaged with its landlords and groups representing the landlords, pension trustees, lenders and other stakeholders, and will seek to engage further as the process progresses.
Financial creditors recently provided £200m of fresh liquidity to Debenhams, and have committed to equitise £100m of debt. The value recovery for shareholders of Debenhams plc is still expected to be nil.
The CVA proposals provide a mechanism to restructure the store estate in line with the plan outlined by management in October 2018 to reduce the current 166 UK store portfolio by closing around 50 stores.
Debenhams has already named 22 of the 50 stores it plans to close, starting next year. These are Altrincham, Ashford, Birmingham Fort, Canterbury, Chatham, Eastbourne, Folkestone, Great Yarmouth, Guildford, Kirkcaldy, Orpington, Slough, Southport, Southsea, Staines, Stockton-on-Tees, Walton-on-Thames, Wandsworth, Welwyn Garden City, Wimbledon, Witney and Wolverhampton. Some 1200 people work in the stores affected, and will be redeployed if possible.
It proposes that all stores will remain open during 2019, including through Christmas peak trading. Further closures will be confirmed in due course, the final number being dependent on future trading performance, discussions with landlords regarding changes in lease terms and rental levels, and with local authorities regarding business rates.
Debenhams has already confirmed the closure of its Lodge Farm warehouse. Its three continuing warehouse facilities could be consolidated further as a result of this process.
The 11 stores in the Republic of Ireland are not affected by the proposal.
Assuming the CVA becomes effective, a fund of a maximum value of £25m will be available for those creditors compromised by the CVA to participate in future growth of the UK business.
To become effective, each proposal requires the approval of at least 75% of the creditors voting, and for more than 50% of the total value of the unconnected creditors to vote in favour. The meeting will be held on 9th May.
The proposed nominees of the CVA are Jim Tucker and Ed Boyle from KPMG's restructuring practice.