Debenhams on brink of administration – stores could start closing January 2020

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Debenhams Bedford

Debenhams is said to be on the brink of administration after the company and its financial backers rejected a bid from Mike Ashley to pump £150m into the retailer.

The pre-packaged administration deal would be directed at Debenhams’ holding company, making shares in the business worthless.

While its 156 stores, their staff, suppliers and pensioners would be unaffected for now, banks and bondholders have said they want Debenhams to close 50 stores through a company voluntary arrangement (CVA).

The CVA process could start within weeks, with landlords firstly being persuaded to release rent contracts early or give the retailer significant rent reductions to put the business back on track.

Speaking to This Moneyindependent retail analyst, Tony Shiret, said: “Debenhams is being killed by its rent.

“Its average rent term is probably 18 or 19 years and they’re paying more than £200m a year of rent plus probably about another £100m of rates, that’s killing them.”

The Guardian reports that if landlords agree to releasing Debenhams from their rent contracts early, we could see stores across the country closing as early as January 2020.

Mike Ashley, who founded Sports Direct, and owns a 30% stake in Debenhams, offered a £150m ‘rescue package’ designed to keep the retailer in the hands of its shareholders.

But this package was rejected because the rescue package contained conditions that would make him chief executive.

Debenhams’ lenders were not prepared to do this and have instead opted for a plan that will wipe out Mike Ashely’s, and everyone else’s, shares.

Ashley’s retail group, which also includes: The House of Fraser, Evans Cycles, Agent Provocateur, Lillywhites and Gilesports, had indicated they may make a fully-funded takeover but this has not materialised.

In a statement released to media, Sports Direct said it was “disappointed”.

Debenhams’ shares have plummeted since it was ‘re-floated’ on the stock market in 2006. Back then it was valued at £1.7 billion, now it’s worth just £22m.

What does this mean for Bedford?

In short, we don’t yet know.

Debenhams going into administration after 241 years will be a massive blow to high streets up and down the UK, but it doesn’t mean the company will definitely disappear from Bedford.

However, the conditions set by the company’s financiers to close 50 stores as part of a CVA will heighten worry amongst staff and shoppers that our Debenhams could be one of them.

Closing 50 stores could put up to 4,000 jobs at risk.

We have asked Debenhams for a comment on the pre-packaged administration and CVA but they were not able to respond prior to publication.

We will update this article as and when they do.