Debenhams has confirmed it is in advanced negotiations about borrowing £150m as it battles for survival.
The funding, which would be in addition to £520m of long-term debts, is intended to ensure credit insurers restore cover for Debenhams’ suppliers and to enable the business to restructure its store portfolio.
The arrangement would also repay £40m of short-term debt agreed last month in an effort to facilitate trading through Easter.
Debenhams is also attempting to refinance £320m of loans and £200m of bonds that are due to be repaid next year. A deal is expected to include a debt-for-equity swap and 50 store closures.
Its latest push for survival comes after the Sports Direct boss, Mike Ashley, stepped up his attempts to seize control of Debenhams last week by calling for a shareholder meeting at which he said he wanted to oust all but one of its directors and install himself as chief executive.
Directors are understood to be attempting to secure a watertight refinancing plan in the run-up to the meeting, which is likely to take place in late April. They want to ensure the support of shareholders against Ashley’s attempt to seize control of Debenhams without a takeover bid.
Ashley would need support from other shareholders to reach the 50% of voting stock required to oust directors or put himself on the board.
But in January he was able to force out the Debenhams chair, Sir Ian Cheshire, by teaming up with fellow shareholder Milestone Resources, controlled by the Dubai-based retail entrepreneur Micky Jagtiani, who owns a 7% stake. Though the pair control less than 40% of Debenhams shares, they were able to push through their scheme as so few other shareholders voted.
Ashley is keen to disrupt the refinancing because the deal is likely to involve a debt-for-equity swap that would dilute the value and voting power of Sports Direct’s stake in Debenhams.
Trading at Debenhams also continues to be poor and the share price depressed. This month the retailer said it would not meet profits targets as sales continued to fall, while the £40m loan and loss of credit insurance for suppliers had added to costs.
Debenhams shareholders, lenders and analysts have expressed concerns about Ashley’s plan, given the trading difficulties at House of Fraser, the department store chain his group bought out of administration last year.
Sports Direct shareholders are also concerned about Ashley’s intention to abandon his role as chief executive of the group should he be installed as boss of Debenhams.