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Debenhams shareholders may lose investments under refinancing plans


Debenhams has publicly warned for the first time that some of the refinancing options it is considering could result in existing shareholders losing all their investment.

The struggling department store group, which is trying to refinance its debt and restructure its estate, said that “certain [refinancing] options — if they materialise — would result in no equity value for the company’s current shareholders.”

The group’s shares promptly fell by over three-fifths to just over a penny.

Separately, its biggest shareholder Sports Direct has proposed acquiring Magasin du Nord, the Danish department store business that Debenhams tried to sell last year, for £100m in cash “to assist with short-term liquidity requirements.”

The warning to shareholders came in a “consent solicitation notice”, a formal request to holders of its unsecured bonds to vary the terms of the notes so that it can put in place up to £200m of secured funding. This would rank above the notes in the event of insolvency. It is also looking for permission to grant collateral to support existing debts.

Assent from the bondholders, whose debt is trading at less than half face value, would help clear the way for a restructuring of the company’s balance sheet. This could happen either through a debt-for-equity swap and share issue, which would be heavily dilutive for shareholders, or a “pre-pack” administration in which the company’s lenders would take control of the business and equity investors would be wiped out altogether.

Sports Direct, which owns 29 per cent of Debenhams, said its offer for Magasin du Nord would include an option for Debenhams to buy the unit back at the sale price, and the right to continue to market Magasin to third parties. It also said that if Debenhams considered the price inadequate, it could “provide further details of its valuation.”

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Debenhams considered selling Magasin last year to raise cash, but in January abandoned the process, saying it had been unable to secure a price that reflected the value of the asset. Magasin trades from seven stores in Denmark and has a more upmarket positioning than the core chain. It had revenues of £210m in the year to September 2018, and analysts had valued it at up to £200m.

The offer for Magasin is the third proposal that Sports Direct has put to the company in recent months. Last December, it revealed that it had offered to lend the group £40m, while two weeks ago it advanced a rival restructuring plan that involved lending the group £150m interest-free and with no security, but only for a year.

That offer was conditional on Mike Ashley, Sports Direct’s founder and chief executive, being installed as chief executive of Debenhams for an as-yet undetermined period.

Mr Ashley has been a vocal critic of the group’s strategy and management, and yesterday resubmitted a request for an extraordinary meeting of shareholders to dismiss all the board except finance director Rachel Osborne. He and another shareholder had already voted chairman Ian Cheshire and chief executive Sergio Bucher off the board in January.



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