May 7, 2019
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Debenhams CVA to hurt small landlords and councils the most

May 7, 2019

There are fears that the biggest hit from the Debenhams CVA if it’s approved this week will be suffered by smaller landlords with the 166 stores the retailer currently operates being shared between as many as 70 different property owners. Debenhams is planning to close 22 stores and wants radical rent reductions on another 105 sites.

Debenhams stores leases are held by a lot of small landlords - Reuters

The firm’s CVA will be voted on this Thursday with only around a quarter of the stores that are currently slated for closure being owned by large property firms or pension funds, The Times reported.

Smaller landlords own the rest and could see rental income being cut by as much as 50% if the CVA gets the 75% creditor approval that it needs. Local authorities will also be hit as Debenhams wants them to cut its business rates bill in half, something that wouldn’t prove popular with smaller retail rivals.

It’s hard to know just how much support the company will receive from landlords and councils with its peer, House of Fraser, still struggling to put together long-lasting deals, despite the fact that it has a small number of stores overall.

But the CVA is expected to get through and one problem for unhappy landlords this week is that their votes on the CVA won’t carry the weight they would be expected to as Debenhams’ store leases are held by two different subsidiaries, Debenhams Retail and Debenhams Properties. Other creditors are also dealt with through the Retail unit, lessening the voting power of the landlords whose leases are held in that subsidiary, The Times said.

The creditors include companies keen to push their own CVAs through, such as Arcadia, which is owed almost £5 million and operates concessions through the chain that reportedly see annual turnover of £100 million.

The newspaper also gave more details of just why Debenhams was so resistant to overtures from then-major shareholder Sports Direct and its boss Mike Ashley before Debenhams Plc was put into administration, leading the way to its takeover by its lenders. It said that one of the firm’s new owners, US-based hedge fund Silver Point, in March made £200 million available “on condition that its outstanding loans were given security over the company’s assets.” That effectively thwarted any chance to reach a deal with Ashley, who sources said could challenge the CVA if it’s approved this week.

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