Struggling Debenhams has netted an additional £40m credit facility as it continues talks with lenders to secure its financial future.
The department store chain, which is carrying out a transformation plan in exchange for continued support from banks, said the new funds would “act as a bridge to facilitate a broader refinancing and recapitalisation”.
Debenhams said it hoped to conclude a “comprehensive” agreement in due course but added that it had agreed a deal in principle with retail stock specialist Li & Fung, aimed at improving its goods and controls.
The news helped the company’s market value – which had been languishing just below £40m after taking a pummelling last year – surge, leaving it 28% higher at the close on Tuesday.
Debenhams is looking to accelerate its turnaround, which will see dozens of stores closed and thousands of jobs lost.
The cost-saving element is crucial if lenders, which already have a borrowing facility above £500m, are to support a refinancing at a time of crisis for the wider high street as shoppers make fewer visits in favour of online transactions.
Debenhams, which issued a series of profit warnings last year, reported a 3.6% fall in comparable sales over the festive season.
Debenhams’ battle for survival is being fought on several fronts.
Shareholder opposition, led by Mike Ashley’s Sports Direct, resulted in chief executive Sergio Bucher being voted off the board last month.
Chairman Sir Ian Cheshire quit in the aftermath of the vote, with former Home Retail Group boss Terry Duddy taking his place on an interim basis.
Mr Ashley, who last year rescued fierce Debenhams rival House of Fraser out of administration, has a holding of just under 30% in Debenhams.
He had offered a £40m financial lifeline of his own to the board but was rebuffed.
In its update to investors on Tuesday, the company said its new strategic sourcing partnership with Li & Fung would be expected to “cover a material part of our own-brand sourcing over time and will deliver benefits for both our customers and our stakeholders, through improved product quality and lead times; higher achieved margins; and better working capital efficiency.”
Laith Khalaf, senior analyst at Hargreaves Lansdown, said of the announcements: “This debt agreement is a lifeline for Debenhams, but isn’t going to solve its fundamental problems.
“Trading conditions remain extremely challenging, and the business has a tightrope to walk between cutting costs and investing in improvements.
“All this when major shareholders voted against the re-election of the chairman and CEO at the recent AGM.
“The jump in the share price on the back of this deal is substantial, however it still sits significantly lower than where it started 2019, and is 90% down over the course of the last year.
“Debenhams is now a small stock with a high level of short sellers, and that means we can expect the share price to be extremely volatile, reacting sharply to both positive and negative news.”
(c) Sky News 2019: Struggling Debenhams nets cash lifeline as it battles funding crisis