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Debenhams confirms £200m refinancing is going ahead but leaves door open for Ashley

Lauretta Roberts
29 March 2019

Department store Debenhams has confirmed that its £200m financial restructure is going ahead but it has still kept the door open for Mike Ashley to complete a takeover.

In an announcement to the Stock Market the company said it had secured two facilities totalling £200m and would be pressing ahead with a restructure that would include previously announced store closures (around 50 of its 165 stores) and rent reductions.

Chairman Terry Duddy said the company was pleased to have secured "this comprehensive funding package which secures the future of the Debenhams business and provides reassurance for Debenhams' employees, pension holders, suppliers, lenders and other stakeholders. We have also preserved a route for our shareholders to participate in the future of the business, but this requires the support of our major shareholder."

Mike Ashley, via Sports Direct, holds a near 30% share in the firm and has been trying to gain control and install himself as CEO. Earlier today he reacted angrily to the news the Debenhams was pressing ahead with its £200m restructure as it was believed it would wipe out all existing shareholders. He went so far as to say he believed the company's advisers should "be in prison".

However in its statement Debenhams has said it has secured two refinancing facilities of £101m and £99m and that it would only draw down on the first, allowing Sports Direct time to table a bid, before it took up the second on 8 April. Alternatively it would ask that Sports Direct enter into a "stabilisation agreement".

The statement read:

"Availability of the second facility is subject to the satisfaction of one of a number of milestones being reached by 8 April 2019. These milestones include Sports Direct International plc ("Sports Direct") or another shareholder holding 25% or more of the company shares, entering into an agreement with the company and its lenders covering either (i) a firm and binding offer for the company which includes satisfactory arrangements to refinance the group debt that becomes due and payable on a change of control, and provides the group with sufficient working capital; or (ii) cancellation of the request to convene an EGM of the company, a stabilisation agreement with the company and a commitment by Sports Direct to either underwrite a rights issue by the company or provide funding by way of a subordinated debt instrument on terms agreed with the group's lenders and noteholders."

Should Debenhams not be able to reach an agreement with Sports Direct by this date the second facility would be made available to the group's subsidiaries only upon transfer of those subsidiaries into the ownership of a lender-approved entity.

If the company were placed into the hands of its lenders it would provide stability for staff, pension holders and suppliers, Debenhams said but "it would very likely result in no equity value for the company's current shareholders". In effect Ashley would then be wiped out.

The company said it would then embark upon its restructuring that would lead to "a significant overall reduction in the group's rent burden. This is a critical component of the group's restructuring plan, and executing this is in part linked to the provision of the facilities."

Debenhams reiterated that it did not believe Ashley's previous cash bid of £61.4m and the offer of financial support was enough to address the company's financial issues.

Read our in-depth company profiles of Sports Direct and Debenhams in our new master database of the UK fashion industry, The Intelligence.

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