Commenting on the company voluntary arrangement (CVA) proposals filed with the Court of Session in Edinburgh on Wednesday 6 June and announced by House of Fraser today, Will Wright, restructuring partner at KPMG and a proposed supervisor of the CVAs, said:
“The CVAs proposed by House of Fraser give the business a vital lifeline to avoid administration by renegotiating the lease terms of its UK-wide property portfolio, as part of a wider restructuring. The business has been impacted by the mounting pressures facing the UK high street, with the declining profitability of certain stores exacerbated by costly legacy leases which were originally negotiated many years ago. With trading conditions unlikely to materially improve in the short term, the future of House of Fraser is at significant risk unless steps to restructure the business both financially and operationally are taken.”
Rob Croxen, restructuring partner at KPMG and second proposed supervisor of the CVAs, added:
“House of Fraser currently operates 59 leased stores across the UK and Ireland, although two stores are excluded from the CVA proposals, one store in Ireland and another held by a separate legal entity. Company Voluntary Arrangements are being proposed by two entities, House of Fraser (Stores) Limited and House of Fraser Limited, which will divide the 57 store portfolio included in this proposal into three categories.
“For a total of 16 ‘Category 1’ stores, the leases will be retained at current rents. For a further 10 ‘Category 2’ stores, a reduced rent, equivalent to 75% of the current rent, will be sought. Across both these categories, the stores will remain open and continue to trade upon successful implementation of the CVA.
“For the remaining 31 stores, a reduced rent, equivalent to 30% of the current rent will be paid for seven months, after which these stores will close. It is important to stress that none of these stores will close on day one, and employees, business rates and suppliers will continue to be paid on time and in full for the duration of the closure period.”
At least 75% of creditor approval for each of the CVAs is required for them to proceed. Detailed proposal documents are expected to be made available to creditors via a dedicated website today. The creditors will vote on the CVAs on 22nd June 2018. KPMG will spend the coming weeks in further talks with key creditors to ensure they understand the full detail of the proposal.