Debenhams secures £40 million rescue deal from lenders, driving up its share price
The struggling British department store has been thrown a lifeline after securing an additional £40 million from its lenders to help it secure its long-term future, with the news sending its share price higher on Tuesday.
Shares in the beleaguered UK department store Debenhams soared more the 30% on Tuesday morning, after news broke that the company has secured £40 million in funding from its lenders.
The funding will help Debenhams find its footing and launch its turnaround plan that aims to secture a sustainable and profitable future for the troubled department store.
‘The support of our lenders for our turnaround 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,’ Debenhams CEO Sergio Bucher said.
Debenhams turnaround plan gets underway
The refinancing package will provide increased liquidity headroom for the company and is available for the company to utilise immediately is part of a much broader refinancing and recapitalisation programme, with Debenhams already making operational improvements to support its turnaround.
The company recently entered into an agreement in principle with Li & Fung, a leading supply chain solutions company for consumer brands and retailers, with the aim of developing a strategic sourcing partnership.
‘In addition, the partnership agreement we are announcing today with Li & Fung will be a key part of our turnaround plan. It gives us access to state-of-the-art technology in the LF Digital platform, providing end-to-end visibility across our supply chain.’
‘This will help us anticipate and respond more quickly to trends and our customers' preferences, as well as delivering better quality product,’ he added.
200-year-old Debenhams in trouble
Last month, the department store announced that it had net debt of £286 million, with cashflow squeezed as Debenhams suppliers grow worried about the overall health of the business, leading them to demand up-front payment for goods before shipping items.
Thankfully, the company’s lenders agreed to provide an additional £40 million to ease the mounting pressure the business is under, with the lifeline helping the department store to turn down an earlier financing deal from Sports Direct owner Mike Ashley, who wanted his loan secured against Debenhams assets.
The credit ratings agency Moody’s opted to cut its outlook on Debenhams to negative in January, with it concerned that it would be able to pay its debts without securing new funding, which it thankfully has done.
However, even with its refinancing package, after a weaker than expected sales performance at Christmas, Moody’s forecasts that the department store could sees it underlying profits decline by as much as £20 million this year.
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