Debenhams, the struggling department store group, said it had agreed an extension to its credit facilities and a sourcing partnership with Li & Fung, the Hong Kong-quoted trading company.
It said it had secured an additional £40m facility for a year from some of its existing lenders and holders of its unsecured bonds. The amount is the same as the loan offered by 30 per cent shareholder Sports Direct last year.
The agreed facility “will act as a bridge to facilitate a broader refinancing and recapitalisation”, the group said in a statement.
It also said it had entered an agreement with Li & Fung to develop a strategic sourcing partnership. Expected to cover a material part of the company’s own-brand sourcing, Debenhams said this would result in improved product quality and lead-times, higher achieved margins and better working capital efficiency.
“Today’s announcement represents the first step in our refinancing process. The support of our lenders for our turnround plan is important to underpin a comprehensive solution that will take account of the interests of all stakeholders, and deliver a sustainable and profitable future for Debenhams.”
Sergio Bucher, the Debenhams chief executive who was voted off the board by Sports Direct and another shareholder in January but who continues to run the company, said the steps were “a key part of our turnround plan”.
As trading worsened at the company last year, Debenhams started to lay the groundwork for a refinancing. Matt Smith, its previous finance director, renegotiated the terms of its £320m revolving credit facility to forestall a technical breach of its fixed-charge covenant, which measures profit against rent and interest obligations.
His successor, Rachel Osborne, said after Christmas that the company would prioritise the renegotiation of its banking facilities. In addition to its bank debt, the company has £200m of unsecured senior notes in issue, which fall due for redemption in 2021. A semi-annual coupon of £5.25m was paid in January, with the next payment due in July.
At the same time, the group abandoned plans to sell Magasin du Nord, a chain of seven department stores in Denmark that analysts said could be worth up to £200m, saying it was unlikely to receive a price for Magasin that reflected its value. The international division, of which Magasin is part, achieved earnings before interest, tax, depreciation and amortisation of £45.3m last year.