Mar 29, 2019
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Debenhams gets lender cash boost, but door still open to Sports Direct

Mar 29, 2019

Brexit or no Brexit?’ That may be the big question in the UK at the moment, but ‘Debenhams-Sports Direct: deal or no-deal?’ is another question few would like to place bets on.

The Debenhams saga is continuing despite it getting the funding deal it wanted and the situation remains fluid and uncertain

One thing we know is that the uncertainty around Debenhams is continuing. This is despite the beleaguered department store chain reaching a definite deal with lenders on Thursday and saying Friday that some of the much-needed £200 million rescue financing has been made available to it immediately.

As part of the deal, the company could be just a few days away from a pre-pack administration filing, which in theory would wipe out the holdings of existing shareholders.

However, as we said, uncertainty is the name of the game here and the company has also offered its biggest shareholder the option to retain its stake by making a definite bid or coming up with its own £200 million rescue package.

The company issued a statement a few hours after Sports Direct boss Mike Ashley launched a blistering attack on its approach in which he said that its advisers should be jailed.

So what happens now? Sports Direct has a deadline of April 8 to decide whether it will fall in with the Debenhams plan or see its entire 29%+ stake wiped out.

So how does the plan work? The retailer has access to £101 million of money from its lenders immediately, partly to replace an expensive £40 million short-term loan taken out a few weeks ago.

The other £99 million of that £200 million total will be affected by Sports Direct’s next move. Debenhams wants it to either make a firm offer that would include debt refinancing and new working capital, or to provide new funds by participating in a rights issue or make Debenhams a loan. It’s also demanding that Sports Direct boss Mike Ashley cancels his move to try to take over as chief executive and the shareholder meeting he has called.

It's certainly a bold move on the part of the Debenhams board and one that Ashley isn't likely to be happy about, although the chances of he and the board reaching some sort of agreement always looked slim given their sharply opposing views.

Debenhams chairman Terry Duddy, said that he thought the deal it had reached so far was the best for the company. He said it “secures the future of the Debenhams business and provides reassurance for Debenhams’ employees, pension holders, suppliers, lenders and other stakeholders.” And he added that the company has “also preserved a route for our shareholders to participate in the future of the business, but this requires the support of our major shareholder.”

If Mike Ashley doesn't agree by April 8, then he will wave goodbye to the roughly £150 million he has spent so far on Debenhams shares. Debenhams would be likely to enter a pre-pack administration deal in that case and could do so as early as next week if Ashley says early on that no-deal is his preferred option. However as we said, when it comes to Debenhams these days, like Brexit, nothing is certain until it has actually happened.

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