Carpetright share price jumps after agreeing to pricey bridging loan and revealing landlord restructuring plans
Troubled retailer Carpetright today secured a multi-million pound bridging loan before going into battle with landlords.
Shareholder Meditor has handed Carpetright £12.5m in cash. The loan must be repaid in less than six months and European hedge fund Meditor will net a near-£2m fee.
At the start of March Carpetright said it was exploring a range of options to “accelerate the turnaround of the business and strengthen its balance sheet”. Today, the firm said:
Further to that announcement, the company announces that it is currently exploring the feasibility of a company voluntary arrangement (CVA), the objective of which would be to address the legacy property issue inherited from the previous leadership by rationalising the company’s property portfolio in order to improve the long-term prospects of the business.
Read more: Carpetright’s shares slide on news of possible store closures
If landlords agree to the CVA, Carpetright said it would launch a rights issue to raise between £40m and £60m.
“I am pleased that we have secured this additional support from one of our major shareholders as we continue to explore the feasibility of a CVA and a conditional equity issue. These further cash resources will enable us to make the necessary decisions free from short-term funding pressure,” said chief executive Wilf Walsh.
The aggressive store opening strategy pursued by the company’s previous leadership has left Carpetright burdened with an oversized property estate consisting of too many poorly located stores on rents which are simply unsustainable.
The company has worked hard over recent years to address this legacy issue and reduce the size of its property estate, however many of these poor performing stores still have long leases to run, which has limited our ability to exit a meaningful number in the short-to-medium term.
Read more: Carpetright shares drop as it warns on profits for the second time in 2018
Jonathan De Mello, head of retail consultancy at Harper Dennis Hobbs, said CVAs were becoming a “buffer against the Brexit storm” for retailers.
“Carpetright’s aim is to ‘right-size’ the portfolio; hiving off unprofitable stores and reducing rents,” he said.
“It is certainly the case that they have too many stores, and rents in some instances are indeed unsustainable – but that is down to the property decisions they themselves made when expanding.”