Tuesday 9 April 2019 12:25 pm

Debenhams falls into administration as Sports Direct fails with £200m equity offer

Embattled department store chain Debenhams has fallen into the hands of its lenders, entering administration despite an 11th-hour bid from Sports Direct billionaire Mike Ashley to keep it public.

Read more: Debenhams shares suspended as it falls into clutches of lenders

Although the retailer’s 165 stores will continue to trade, some 50 outlets have already been flagged for possible closure.

FTI Consulting has been appointed as the administrator.

Administrators have immediately sold the group to a newly incorporated company controlled by its lenders in a pre-packaged administration.

That will wipe out shareholders’ stakes, including the 30 per cent owned by Ashley.

Earlier today the Financial Conduct Authority temporarily suspended trading of the under-fire department store “at the request of the company” as the London Stock Exchange opened for business, with analysts warning its stock price could hit zero by the end of the day.

In a letter to shareholders today, the group said that if plans to proceed with a restructuring of the estate are approved, there will be a “significant overall reduction in the group's rent burden and underpin a sustainable future for the group”.

Terry Duddy, Debenhams’ chairman, said: “It is disappointing to reach a conclusion that will result in no value for our equity holders. However, this transaction will allow Debenhams to continue trading as normal; access the funding we need; and proceed with executing our turnaround plans, whilst deleveraging the group’s balance sheet.

“We remain focused on protecting as many stores and jobs as possible, consistent with establishing a sustainable store portfolio in line with our previous guidance.”

Silver Point and Golden Tree are among the US hedge funds that will be taking over the beleaguered retailer after Debenhams gave short shrift to Ashley's improved equity offer this morning.

The Sports Direct owner offered a £200m cash injection for the group in the early hours of this morning, but today Debenhams rejected the billionaire’s advances.

The deal would have forced Debenhams to make Ashley its new chief executive, and lenders would have had to write off £82m of the struggling department store chain's £720m debt pile.

A spokesman for the Debenhams Pension Schemes said: “The trustees have been informed that Debenhams has been placed into administration. Debenhams is not the sponsoring employer of the schemes.

“The relevant employer for the schemes is Debenhams Retail Limited. Debenhams Retail Limited has been transferred to a newly incorporated company and continues to trade and operate as normal. Members can therefore be reassured that the schemes are carrying on as usual.

Read more: Sports Direct says Debenhams has rejected £150m equity offer

“The trustees have worked with our specialist advisers throughout the process of the company’s refinancing and restructuring, to ensure that members’ interests are taken into account, and we have consulted closely with The Pensions Regulator and the Pension Protection Fund at every stage.

“We are in the process of writing to all members with further information, and we will continue to keep them informed.”

Ian Fletcher, director of finance and commercial policy at the British Property Federation, said landlords will need convincing if Debenhams attempts a company voluntary proposal (CVA) that leads to more store closures or attempts to slash rents.

“Today’s pre-pack could lead to a CVA proposal and property owners will want to be assured that there is a sound turnaround plan in place for the business,” he said.

“These situations are never easy, however, as property owners, including those protecting pensioners’ savings via investment into property, need to consider the impact on their investors.”

Read more: DEBATE: Could Mike Ashley be the answer to Debenhams’ woes?

Richard Lim, chief executive of Retail Economics, added that Debenhams’ fall from grace will send reverberations across the high street, but that it fell behind in the industry’s race to innovate.

“Debenhams has fallen victim to crippling levels of debt, which has paralysed its ability to pivot towards a more digital and experience-led retail model.

“Put simply, the business has been out-manoveured by more nimble competitors, failed to embrace change and was left with a tiring proposition. The industry is evolving fast and it paid the ultimate price.”