Debenhams has collapsed into pre-pack administration, and has handed over the reins to its secured lenders.
Debenhams appointed Chad Griffin, Simon Kirkhope and Andrew Johnson of FTI Consulting as its joint administrators.
The business entered administration and was immediately sold to a newly incorporated company controlled by the lenders, which comprise a mix of banks and US hedge funds including Barclays and Bank of Ireland.
The pre-pack, which will allow Debenhams to access £200m fresh funding from its lenders, will wipe out equity value for current shareholders including its largest stakeholder Mike Ashley.
The deal also included provisions to ensure that Debenhams is “immediately marketed for onward sale”.
Although Debenhams said in a statement that it will continue to trade as normal, the process is expected to put the wheels in motion for a far-reaching store restructuring.
Debenhams previously outlined aims to close up to 50 of its 166 stores over the next three to five years.
The total estate measures around 15.8m sq ft, according to Radius Data Exchange.
Terry Duddy, chairman of Debenhams, said: “It is disappointing to reach a conclusion that will result in no value for our equity holders.
“However, this transaction will allow Debenhams to continue trading as normal, access the funding we need, and proceed with executing our turnaround plans, while deleveraging the group’s balance sheet.
“We remain focused on protecting as many stores and jobs as possible, consistent with establishing a sustainable store portfolio in line with our previous guidance.
“In the meantime, our customers, colleagues, pension holders, suppliers and landlords can be reassured that Debenhams will now be able to move forward on a stable footing. I would like to thank them all for their recent and continuing support.”
Landlords with exposure to the insolvency process include intu, British Land and Capital & Regional.
At intu, Debenhams occupied 10 units in its portfolio and accounted for 3% of rental income during the year to 31 December 2018.
Capital & Regional has three Debenhams stores among its seven wholly-owned retail assets, accounting for 5.8% of its total income.
British Land, which has been selling its remaining freeholds in Debenhams stores in recent months, recently replaced Debenhams with Facebook as a tenant at its Regents Place offices.
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Ion Fletcher, director of finance and commercial policy at the British Property Federation, said: “Today’s pre-pack could lead to a CVA proposal and property owners will want to be assured that there is a sound turnaround plan in place for the business. These situations are never easy, however, as property owners, including those protecting pensioners’ savings via investment into property, need to consider the impact on their investors.
“Any CVA must be transparent and fair, and we would encourage Debenhams and its insolvency practitioner to meet with the BPF’s insolvency committee before it launches a CVA, to give property owners the opportunity to voice their interests and concerns and flag any proposals that will be difficult to support.”
The department store retailer rejected a revised £200m lifeline from Mike Ashley’s Sports Direct earlier today, and suspended its shares.
Sports Direct had proposed to underwrite a £200m pre-emptive equity issuance to existing Debenhams shareholders, upping it from a £150m proposal made yesterday (8 April).
Ashley was given the 8 April deadline to make a formal bid for the chain. Sports Direct says it now has until 22 April to make a firm takeover offer.
See also: What’s next for Debenhams and John Lewis?
James Child, head of retail and industrial research at EG, said: “With the business facing administration, the proposed three- to five-year plans of consolidation and rightsizing which had initially been laid out in 2018 appear fanciful.
“The new owners will be looking at the best way to cut costs immediately, with the store portfolio at the top of the tree for costs.
“Despite Ashley’s quite public pursuit of the business, the decision to suspend shares this morning appears to have stopped the self-appointed saviour of the high street in his tracks.”
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