New Look to 'seek CVA' to cut debt load
The rumours around New Look have been swirling for some time. But now it looks likely that the troubled fashion retailer is seeking a company voluntary arrangement (CVA) to tackle its £1.2 billion debt load with a series of measures that include seeking the rent reductions that analysts have been speculating about for weeks.
The rescue plan would see it closing lossmaking stores and getting landlords to agree to rent reductions of up to 60% on its remaining stores, the Guardian reported. While landlords will not be happy about this, given that some store rents rely on turnover and profitability at the respective locations, and that vacancies aren’t easy to fill at present, the chain could be in a relatively strong position.
A CVA is a legal agreement that allows a business to reduce its outgoings, but it needs the agreement of 75% of its creditors by value.
Reports suggest that the retailer has categorised its roughly 600 stores into three groups based on how they have been performing, with the 70 at the bottom of the list potentially being closed if the company can’t get agreement to let it pay only 40% of their current rent bill.
But it’s not only the worst performers that it’s focusing on. Another 380 in the middle tier are being targeted for rent cuts of between 20% and 60% for as long as three years. The top 150 stores would carry on as now.
But while the CVA would require creditor approval, there’s another hurdle to jump before this can happen. The firm’s bondholders also have to agree to the private equity-owned company going ahead with its plan.
Despite the press reports, New Look said that no decision has been taken regarding a CVA. Yet we do know that its finance chief Richard Collyer has written to landlords to set up meetings to talk about potential closures and rent bill cuts.
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