Banks and hedge funds have taken control of Debenhams (DEB.L) after the department store fell into administration on Tuesday.
Debenhams confirmed on Tuesday morning that FTI Consulting had been appointed as administrators for the business. The retailer said “all businesses are continuing to trade as normal.”
However, the core of the business was immediately bought out of administration by a consortium of Debenhams’ lenders, as part of a plan first announced last month. Debenhams will be given a new £200m line of credit to fund a restructuring as part of the deal.
“The Transaction delivers continuity for all Group operations and was in the best interests of the Group’s creditors, employees, customers, pension holders, and suppliers,” Debenhams said.
The “pre-pack administration,” as these types of transactions are known, wiped out all Debenhams’ shareholders. Shares were suspended from trading earlier on Tuesday.
“It is disappointing to reach a conclusion that will result in no value for our equity holders,” Debenhams’ chairman Terry Duddy said.
“However, this Transaction will allow Debenhams to continue trading as normal; access the funding we need; and proceed with executing our turnaround plans, whilst deleveraging the Group’s balance sheet. We remain focused on protecting as many stores and jobs as possible, consistent with establishing a sustainable store portfolio in line with our previous guidance.
“In the meantime, our customers, colleagues, pension holders, suppliers, and landlords can be reassured that Debenhams will now be able to move forward on a stable footing. I would like to thank them all for their recent and continuing support.”
The administration represents a defeat for Mike Ashley, the billionaire founder of Sports Direct, who owns 30% of Debenhams and has been battling to take control of the retailer. Ashley’s alternative offers of support, all of which involve him becoming CEO, have repeatedly been rebuffed.
Earlier this week, Debenhams rejected an offer by Sports Direct to underwrite a £150m equity issuance by Debenhams to save the retailer from administration. Sports Direct countered with an offer on Monday night to underwrite a £200m issuance.
Debenhams said “the proposal, on the terms set out, was not sufficient to justify an extension to the 8 April deadline.”
Yahoo Finance UK understands Debenhams intended to seal its pre-pack administration on Monday, but was disrupted by the last minute offer from Sports Direct.
Debenhams shares have fallen over 90% over the last year, declining by 10% on Monday. The department store has been struggling with falling sales, high fixed costs, and a large debt of over £250m.
“With further cost-cutting measures no doubt required and plans to undertake a CVA with its creditors, its future on the UK High Street remains uncertain,” said Sean Moran, an insolvency partner at law firm Shakespeare Martineau.
“Following on from record losses last year, the retailer’s declining position is yet another sign of the perfect storm of issues facing the UK retail sector.”