Debenhams offered vital cash injection lifeline

Financial Services | Funding | Latest News | Retail

High street retail giant Debenhams has secured a vital £40m cash injection, to buy the company extra time to help secure its long-term survival.

Debenhams has been in a continual battle to work out new deals with its existing lenders. The company has issued a series of financial warnings in recent months, as these talks have dragged on, leaving many employees and suppliers unsure on the department store chain’s future.

This extra funding will extend Debenham’s current £520m borrowing facilities with its banks for the next 12 months.

Sergio Bucher, CEO of Debenhams, said: “Today’s announcement represents the first step in our refinancing process. 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.

“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.”

Debenhams shares have risen 40% on the stock exchange this morning, following the announcement.

The company will pay Libor+ 5% in interest on the money borrowed, and will provide a bridge to a more comprehensive refinancing, expected in due course.

Laith Khalaf, Senior Analyst, Hargreaves Lansdown commented:”This debt agreement is a lifeline for Debenhams, but isn’t going to solve its fundamental problems. Trading conditions remain extremely challenging, and the business has a tightrope to walk between cutting costs and investing in improvements. All this when major shareholders voted against the re-election of the Chairman and CEO at the recent AGM.

“The jump in the share price on the back of this deal is substantial, however it still sits significantly lower than where it started 2019, and is 90% down over the course of the last year. Debenhams is now a small stock with a high level of short sellers, and that means we can expect the share price to be extremely volatile, reacting sharply to both positive and negative news.

“Debenhams’ longer term prospects are still in the balance, and recent data showing a deterioration in the UK economy isn’t exactly going to help matters. For now, Debenhams has kicked the can down the road, but will have to come back for some tough negotiations with quite a lot of internal dissent amongst its stakeholders. Sounds eerily familiar.”

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