Carpetright racks up multi-million pound fees as fundraise leaves costly loans in situ

 
Oliver Gill
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Carpetright Faces Store Closures
Carpetright expects to make a £9m loss for the year to April 2018 (Source: Getty)

Costs associated with Carpetright's rescue plan have hit almost £10m in a matter of weeks, as the wounded retailer today confirmed its £65m fundraise.

After shelling out almost £5m in fees to secure bridging loans of £27.5m from shareholder Meditor, today's share placing will cost the firm a further £5m with net proceeds expected of £60m.

Carpetright shares leapt almost 20 per cent on this morning's announcement that the placing had been fully underwritten.

Peel Hunt is to act as sponsor for the placing and is joined by Deutsche Bank as joint bookrunner.

The placing proceeds will be used to pay the first of two emergency loans stumped up by charitable-trust backed Meditor. A £12.5m loan, upon which three per cent of interest was due, was extended to Carpetright on 21 March and will be repaid in full once the placing goes live on 8 June as expected.

Funds will also be used to cover £6m of anticipated costs associated with Carpetright's company voluntary arrangement (CVA) restructuring – a move which will see 81 stores closed.

Read more: Carpetright creditors approve CVA: Here's the full list of 81 closures

Meditor also lent Carpetright £15m on 11 May. Proceeds from the fundraising will not be used to repay this debt, which attracts an eye-watering 18 per cent rate of interest. The loan is due to be repaid in the summer of 2020, meaning interest charges alone could hit around £5m if Carpetright fails to refinance it in the meantime.

Creditors gave their final approval to Carpetright's CVA at the end of last month. The firm said it will swing into an annual loss for the year April, blaming a lack of consumer confidence and the disruption caused by its protracted restructuring.

Read more: Carpetright shares sink on news it plans to close 92 stores

Analysis – good money after bad?

"Observers of Carpetright’s £60m Placing and Open Offer today might be questioning what on earth is going to change. Here is a terrestrial retail model from the 1980s asking landlords for lower rents and shareholders for more cash. Is this not throwing good money after bad?" said Edison analyst Paul Hickman.

In fact what is going on here is really quite radical. Management is open in saying the physical estate had become too large. It has already succeeded in exiting 176 of the 586 stores it had in 2010. Recent competition from Martin Harris’ Tapi has brought the issues into high relief. Under Carpetright’s CVA proposal, it intends to terminate leases early on a further 92 stores, and in addition it is asking landlords to reduce rent on a total of 113 sites.

Hickman continued: "A vital part of the new business plan is to upgrade its digital platform using contemporary software that will bring its digital marketing into the 21st century. This is an area of real challenge, with disruptive models like eve sleep attacking consumer durable space, once thought of as the last bastion of terrestrial retail.

"This does look like a serious and comprehensive effort to lift Carpetright out of the cycle of decline that has hit other legacy retailers."

Read more: Carpetright manages to grab £15m of emergency funding

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