Ailing department store Debenhams (DEB) collapses 33% to just 1.95p as the retailer announces a debt restructuring plan that would effectively wipe out shareholders. On the brink of losing their shirts on an ill-fated retail investment, exasperated investors are spooked because Debenhams needs more cash than previously thought, although the severity of the share price plunge has moderated following a subsequent response from biggest shareholder Mike Ashley (pictured below).
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Shares in the structurally-challenged retailer have cratered in recent years, the department-store operator straining under the load of its debts and having to shutter under-performing stores as shoppers move online and migrate to cheaper rivals.
NOW IT NEEDS £200M
Today, management at the embattled retailer says it is seeking £200m from lenders and bondholders, significantly more than the £150m Debenhams previously said it was looking to raise.
Specifically, it has launched a consent solicitation for holders of its 5.25% bonds due in 2021. This process seeks consent from bondholders to change the terms of their existing notes and enable Debenhams to enter into vitally-needed new loan facilities.
As today’s statement reads: ‘A successful consent solicitation would allow the company to enter into new money facilities and give Debenhams the ability to pursue restructuring options to secure the future of the business.
‘However, certain of these options - if they materialise - would result in no equity value for the company’s current shareholders.’
MIKE’S PLAN FOR MAGASIN
In response, Sports Direct says it has offered to buy Magasin Du Nord – Debenhams’ Danish business – for £100m in cash or perhaps more, providing a short term liquidity boost. However in return, Sports Direct wants Ashley installed as CEO of Debenhams to help it through the restructuring process.
Debenhams would have the right to buy it back for the same amount within a year, amounting in effect to a short-term £100m loan secured against Magasin du Nord.
‘Sport Direct believes its proposal would provide additional management and first class leadership to Debenhams through this challenging period of restructuring, together with additional funding,’ reads the response from Ashley’s charge.