Sports Direct offers Debenhams £150m loan

Debenhams has confirmed it is considering an offer made by Sports Direct for a £150m unsecured 12 month loan.

The news comes after the department store announced it was in discussions with its lenders to obtain the funding, a move which seemed to counter shareholder Mike Ashley’s attempt to appoint himself to an executive role on Debenhams’ board and take control of the company.

Of the £150m funding the company confirmed it was seeking, £40m would have been used refinance the money it received in February.

However, before an offer was made, Sports Direct wrote a letter to the Financial Conduct Authority accusing Debenhams of misleading investors in trading updates. He pointed out that the company said it was “on track” to deliver profits in line with expectations only to say that was “no longer valid” in its most recent trading update.

He also highlighted the fact that Debenhams said it continued to generate cash before announcing a £40m loan “a mere five weeks later”.

The letter said: “You were clearly aware of the uncertainties in the market in January, yet you were still willing to make a statement that ‘the group is currently on track to deliver current year profits in line with market expectations’, again an example of being wildly optimistic or at worst being deliberately misleading, to the point that the board and CEO have no place leading a plc or in making public statements to the market.”

Sports Direct made the offer to the department store at 6.30pm on 13 March which proposed on or before 31 March “of the total amount of the lending, £40m would be used to repay Debenhams’ £40m bridge facility with an attendant release of security. The remaining £110m would be available for general working capital.”

The statement added: “Debenhams would agree to put a proposal to its independent shareholders to approve the issue of circa 5% new shares at the prevailing market price to Sports Direct (so as to increase Sports Direct’s shareholding to circa 35%). If the 5% share issue and related “whitewash” was approved by Debenhams’ independent shareholders, the £150m loan would be guaranteed to be interest-free. If such approvals were not forthcoming, the loan would bear interest at 3%.”

In response, Debenhams said today (14 March): “Debenhams acknowledges Sports Direct’s statement issued at 6.30pm last night and confirms receipt of its proposal to provide a £150m, unsecured 12 month term loan to the company, subject to certain conditions.

“Any third party loan offer on these terms would require both the consent of our RCF Lenders and noteholders and material amendments to existing facilities. Nevertheless, the board will give careful consideration to the proposal and will engage with Sports Direct and other stakeholders regarding its feasibility in the interests of all parties.”