Dreams lender calls for urgent cash injection



Britain's biggest beds retailer, Dreams (Berlin: DMVA.BE - news) , is facing questions over its future after its main lender called on the company’s owners to inject much-needed funds.

Steve Johnson, Dreams’ chairman, unexpectedly stepped down on Wednesday after what insiders called “differences of opinion” with banks, led by Royal Bank of Scotland.

Exponent (NasdaqGS: EXPO - news) , Dreams’ private equity backer, has already put £20m of new money into the retailer , but will have to come up with more cash in the next two months or face the prospect of losing control.

Lenders have expressed support for the company, confirming that Dreams has enough money to last until Christmas. However, from then on the retailer’s future could hang in the balance without new capital or a new deal with lenders.

The retailer, which has brought in KPMG as an adviser, has faced mounting pressure amid a slowdown in consumer spending. Dreams employs 1,800 people and has 270 stores across the country. It has £40m of debts despite refinancing its loans twice last year.

The company was bought by Exponent for £230m at the height of the buy-out boom. Initially the company prospered, expanding aggressively to increase market share. However, according to its latest filed results, profits slipped from £17.9m to just £4.4m in the year to December 24, 2010, despite a 5pc increase in sales. This year, revenues have risen 3pc, with like-for-like sales up 1pc. However, it remains unclear how those sales have fed through to the bottom line, given the current spate of discounting across the retail sector.

Last year, some of the company’s credit insurance was withdrawn, forcing Exponent to inject £20m into the company to refinance debt. Close to half of the cash was in the form of a pre-payment of a senior loan and £12m was raised in a sale and leaseback of the head office.

Since then, the banks have brought in their own restructuring expert, Alan Fort, to spearhead a turnaround programme. The lenders are keen to reach an agreement with Exponent at the “right” price, but sources said a “low bid” from the firm would not be acceptable.

A Dreams spokesman said: “We are in constructive discussions with our lenders who remain supportive.”