Wednesday, 03 April 2019 17:49

Why Debenhams Refinancing Fails to Reassure Small Creditors

It can’t be too often that small suppliers find themselves in agreement with notoriously hard-nosed retail tycoon Mike Ashley, owner of the Sports Direct Group. But on the subject of troubled department store Debenhams’ recovery options, there may be some common ground.

In the past week, Debenhams has secured a £200m refinancing package to help it restructure its debts, cut operating costs and rationalise its store holdings. Mike Ashley and Sports Direct, Debenhams’ biggest shareholder, are vehemently opposed to the plan, even going so far as to write to shareholders alleging misconduct from directors in a bid to get them to block the plans.

Ashley has his own ideas about how Debenhams should get out of its present sorry state - it should allow him to become the majority shareholder and effective owner by sanctioning his purchase of remaining shares, at a rate attractive to him of course. His beef with the refinancing package is probably because it piles another huge chunk of debt onto the company which, if he is successful in taking it over, would become his responsibility.

Content continues below

Prompt Payment Code fails to stop large firms making slow payments

Slow payments represent a substantial risk to small and medium-sized businesses, who must often meet the cost of materials and labour for a month or more while waiting for customers to settle…

Simple Credit Control Could Save Struggling UK Businesses

Simple credit control measures could help one in ten businesses nationwide to stay operational in the face of delayed payments. According to figures from Yorkshire Bank and its north-of-the-border…

Online streaming has Blockbuster screaming (again)

It seems only fitting that Halloween week should be the moment when Blockbuster Video - one of the UK's biggest zombie businesses - reveals that, for the second time in ten months, it is lurching…

‘Call for Evidence’ a Sign the Government Still Hasn’t Got a Handle on Late Payments

It feels like we have been here before somehow. Lots of well-meaning words, a tough-sounding stance… and then what? Rinse and repeat. The latest announcement from the government on the subject of…

Big lenders get more leverage

For very different reasons, the extra debt being taken on by Debenhams should be cause for alarm for small creditors too, including suppliers. The point, of course, is that the company is trying to speculate to accumulate - or, in this case, borrowing more cash to save its bacon and get back onto an even financial footing. It it works and the company manages to restructure effectively, emerging out the other end as a thriving going concern, then all well and good for everyone involved.

But there lies the rub. Given Debenhams current circumstances, facing a toxic cocktail of dwindling revenues and rising costs, taking on yet more debt is a big risk. Moreover, it ties the fortunes of the company more closely than ever to its lenders and bondholders, who have stumped up this extra cash. Should the restructure not work and the company slips into insolvency, these backers will no doubt assume its running, and do whatever seems most appropriate to recover their money. The risk of unsecured creditors like suppliers going unpaid becomes very real.

Just how big a risk the refinancing package is was underlined by this FT article, which picks out what it is actually costing Debenhams just to receive the loan - arrangement fees, facility extension fees and inducements to bondholders probably approaching close to £20m in total. And that is with a 12% interest rate on repayments to add on top. For a company already struggling to pay its bills, that is a considerable additional outlay.

Over 150 Years Of Industry Experience

Our modest but highly skilled team has a combined total of over 150 years of experience in commercial credit management and B2B debt collection. From independent IT contractors to major film and TV publishers, Safe Collections has the knowledge and experience you need to get paid quickly and cost effectively.

Image "Debenhams Frontage" by Flickr user "Karen Bryan" used in accordance with CC BY-ND 2.0

8:00 - 20:00

8:00 - 20:00

Our Opening Hours Mon. - Fri.

+44 (0) 1772 454505

+44 (0) 1772 454505

Got questions? Call us today. No hard sell, guaranteed. 

© Safe Collections is a trading name of Safe Collections Limited. Incorporated 1984. Company Number: 01815264. VAT Number: GB407358159. All Rights Reserved.