Debenhams plans to push up the size of its upcoming refinancing to fend off attempts by major shareholder Sports Direct to seize control of the struggling group.
The struggling department store group said on Monday it wanted “additional facilities of approximately £150m” from its banks and was in “advanced negotiations” with its current lenders.
If successful, the refinancing would repay a £40m bridge loan secured last month.
It would also allow Debenhams to get some level of credit insurance cover restored, restructure its store portfolio and continue trading through the coming year, including Christmas.
Last week Sports Direct, which is controlled by billionaire Mike Ashley and is a 29 per cent shareholder in Debenhams, demanded an extraordinary meeting of shareholders to dismiss all but one of the company’s six directors and install Mr Ashley as chief executive.
One person close to Debenhams said the management and creditors were looking at ways to make the refinancing “as watertight as possible”.
The company is now effectively working against the timescale imposed by the EGM process, under which Debenhams must respond to the Sports Direct request within 21 days and hold the meeting within 28 days of that response. That would take it to late April.
The question of whether shareholder approval is required for the refinancing will be critical.
Last year, both Mothercare and Carpetright went through complex restructurings that included store closures and new banking facilities, as Debenhams is likely to do. They also featured substantial new equity issues, which required approval from existing shareholders, although they did not involve the debt-for-equity swap that Debenhams is widely expected to seek.
Both those companies had major shareholders who were also creditors, and were supportive of the refinancing. Mr Ashley is neither. His offer to lend the company £40m last year was rebuffed, and he has been critical of the management.
Sports Direct said at the weekend it was “clear that investors have not been well served” by Debenhams’ decision to reject Mr Ashley’s loan offer, and added that the company’s directors “appear only to be concerned on getting a future finance deal that is not in the interests of the majority of its stakeholders including shareholders, creditors, employees and its pension schemes”.
Debenhams last week said that its previous financial guidance was “no longer valid” and that it expected higher interest costs and disruption to trading from the refinancing.
If a shareholder vote is required on the refinancing, either before the EGM called by Sports Direct or at it, turnout will be crucial.
At the company’s annual meeting in January, Mr Ashley and another investor were able to oust then-chairman Ian Cheshire and chief executive Serio Bucher from the board despite only owning a combined 37 per cent of the shares, because insufficient numbers of other investors voted.
Additional reporting by Naomi Rovnick
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