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
We always say that in good credit control, prevention is better than cure - collections and recovery action should be for the bad debts you didn't see coming, not the ones you did. But how do you…
The UK’s supermarket watchdog has published its annual grocery code compliance list, naming and shaming supermarkets for poor treatment of suppliers and other breaches of the industry code of…
Lifestyle magazine The Pool has suspended all freelancer commissions after it emerged it was facing a sizeable backlog of late payments owed to contributors as well as to staff. New editor Cate…
Credit control failures are a worry at the best of times, and none of us want to be left with overdue invoices to chase - or with unpaid invoices of our own that become subject to debt recovery…
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