December 10, 2010 11:11 pm

JJB investor offers help to ailing retailer

JJB Sports’ largest shareholder is “ready, willing and able” to provide the
ailing sporting goods retailer with additional equity as the company faces the prospect of breaking its banking covenants early next year.

David Herro, chief investment officer with the US fund Harris Associates, said it was willing to provide the funds JJB Sports needed to avoid problems with its lenders and overhaul its stores.

“We think that a management strategy is in place, there are the right people. All they need is a little bit of time and room and if they need more money so be it,” said Mr Herro, whose fund controls 20 per cent of the company.

“We’re more than willing to be forthcoming with additional financial support,” he added.

The support of the group’s biggest shareholder is a fillip for JJB, which said last week that it was considering its options for restructuring or alternative sources of financing as it was likely to breach its banking covenants at the end of January.

The group, which raised £100m in a rights issue a year ago, is working on a further fundraising. Some analysts suggested it could look to raise about £30m this time round.

It also comes ahead of a crucial few weeks for the group, which is facing its peak Christmas trading period, as well as the covenant test at the end of January.

The retail sector has become increasingly nervous about general trading conditions in the run-up to Christmas, amid concerns about government austerity measures, which could dent consumer confidence, and the possibility of more bad weather.

Harris’s stance also differs from that of Crystal Amber, the group’s second-largest shareholder, with just over 15 per cent of the shares.

It is understood it wants to see a credible plan for the company, and acquire a seat on the board, as a condition of supporting any fundraising.

Another shareholder indicated that it would need to see the terms and conditions of any equity raising before making a decision on whether to support it.

Poor sales in the second half of November pushed JJB to warn on December 2 that it would violate the terms of a £25m revolving facility it holds with the Bank of Scotland.

Analysts have said that JJB Sports would need to raise new equity or debt to fund a store modernisation programme, which has bolstered sales but has only been rolled out to six of the group’s portfolio of more than 250 shops.

Mr Herro said that he envisaged JJB turning round its fortunes within two to three years.

The company’s focus on sporting equipment, he said, filled a gap left by the more fashion-centric Sports Direct and JD Sports.

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