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Debenhams secures $72 million loan to refinance business

Struggling British department store Debenhams has been thrown a lifeline in the form of a $72.6 million (£40 million) credit facility, which will “act as a bridge to facilitate a broader refinancing and recapitalisation”.

The announcement pushed the share price of the business up by approximately a third, reaching a high of $8.44 (£4.65) per share on Tuesday morning.

The new facility agreement, which can be drawn from as required, contains provisions for an increase in pricing during the second quarter of the 2019 calendar year.

“Today’s announcement represents the first step in our refinancing process,” Debenhams chief executive Sergio Bucher said in a note to investors.

“The support of our lenders for our turnaround plan is important to underpin a comprehensive solution that will take account of all the interests of all stakeholders, and deliver a sustainable and profitable future for Debenhams.”

The retailer also revealed an agreement in principle with supply chain solution provider Li & Fung, with the aim of developing a strategic sourcing partnership which is expected to deliver improved product quality and lead-times, higher achieved margins and better working capital efficiency.

Bucher said Li & Fung will be a key part of Debenhams’ turnaround plan moving forward, giving the department store access to state-of-the-art technology and visibility across its supply chain.

“This will help us anticipate and respond more quickly to trends and our customers’ preferences, as well as delivering better quality product,” Bucher said.

The department store previously turned down a $72.6 million (£40 million) loan offer from Sports Direct on the basis that it came with conditions that would have impacted the interests of other shareholders. Reuters reported that Sports Direct’s CEO Mike Ashley may have been looking to merge Debenhams with House of Fraser, which Sports Direct had recently acquired.

Debenhams has been hit by many of the same market forces that are forcing department stores globally to rethink the way they do business, including decreased footfall in shopping centres and the tightening of consumer spending off the back of slow wage growth.

Locally, both David Jones and Myer are in the midst of turnaround efforts after seeing business drop away, with both retailers having seen slowing sales over the longer-term, and with David Jones having recently reported a subdued Christmas period.

Internationally, US department store Sears was recently saved from liquidation by a last-minute renegotiated US$5.2 billion deal from chairman Edward Lampert, after being forced to declare voluntary administration off the back of falling sales.

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