Debenhams falls into the hands of lenders

Debenhams' control fell into the hands of its lenders as part of an administrative process.

Debenhams has 166 stores, which will initially continue to trade, although some 50 branches have already been designated for future closure.

The department store rejected Mike Ashley's Sports Direct last resort rescue offer, which was stuck in a fierce battle for control.

Its lenders are made up of major banks and US hedge funds.

These include Barclays and Bank of Ireland, as well as Silver Point and GoldenTree.

The directors said lenders would now seek to sell the business as quickly as possible.

What is happening now?

Debenhams went through a pre-pack administration process. This allows a company to sell or sell its badets without harming the operation of the business. Lenders now take control of the business and will seek to sell it, and shareholders will lose their investments.

This means that Mr Ashley's almost 30% stake in the company, which costs about £ 150 million, will be canceled.

Debenhams employs approximately 25,000 people. In addition to planned closures, he also renegotiated rents with homeowners to resolve his financing issues.

He has not published a list of stores that can be closed.

In February, it was revealed that the closing of 20 of these stores could be postponed if the retailer subscribed to a voluntary business agreement (CVA), a form of insolvency allowing businesses to apply for rent reductions and to close unwanted stores.

The company said its restructuring plans would continue and, if approved, would "result in a significant overall reduction in the group's rent burden and a sustainable future."

What did Debenhams say?

Terry Duddy, president of Debenhams, said, "This transaction will allow Debenhams to continue its business as usual, to access the financing we need, and to continue with the execution of our plans. recovery while deleveraging the balance sheet of the group.

"We remain focused on protecting as many stores and jobs as possible, in line with the establishment of a portfolio of sustainable stores, in line with our previous recommendations.

"In the meantime, our customers, colleagues, pensioners, suppliers and owners can be rebadured that Debenhams will now be able to move forward on a stable footing."

A spokesperson for the company's pension plans said: "Debenhams plc is not the employer sponsor of the plans.

"The competent employer for these programs is Debenhams Retail Limited, which has been transferred to a newly incorporated company and continues to trade and operate normally, so members can rest badured that the programs run as usual. . "

Why does Debenhams have problems?

Debenhams has been struggling for a while and issued three profit warnings in 2018. He also has a debt of £ 622 million.

Last year, the group announced a pre-tax record loss of 491.5 million pounds sterling and subsequently announced that its sales had fallen sharply at Christmas.

The company was listed on the stock market in 2006 with a stock price of £ 1.95 and its share price peaked at £ 2.07 the next day.

However, it has suffered from the fact that more and more people have decided to shop online rather than in-store and football has been reduced.

The size and high cost of store management as well as the investments required to run a business in the context of modern retailing have also put the company under financial pressure.

This is despite the fact that Debenhams is the largest chain of traditional department stores in the UK.

Its highest pre-tax profit since its IPO was £ 160.3m in 2011, but lost £ 491.5m last year.

On Monday, he rejected Mike Ashley's 150 million pound sports rescue package, which was raised to 200 million pounds on Tuesday morning.

The superior offer was rejected because Mr. Ashley wanted to become general manager.

What do the experts say?

Laith Khalaf, senior badyst at Hargreaves Lansdown, said, "As an investment, Debenhams is a story of misery from start to finish.

"The strategy has evolved since the free float was out of step with changing consumer habits, but even before the free float, its private equity owners had put financial pressure on the department store by selling a number of properties in favor of location.

"The recoil is a wonderful thing, but the road that leads to the ruin of Debenhams has been paved with bad decisions, as well as a dramatic bend toward digital shopping."

Richard Lim, Managing Director of Retail Economics, said, "We must not underestimate the importance of this collapse." Debenhams is suffering from a crushing debt, which has crippled its ability to stay in business. steer towards a more digital and experiential distribution model.

"In simple terms, the company has been mastered by more agile competitors, has not been able to adapt to change and has found itself with a tiresome proposal. evolves quickly and has paid the ultimate price. "

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