Ashley offers Debenhams £150m loan - with strings attached

Debenhams, which has net debt of around £286m and a committed debt facility of £520m that expires next year, said on Monday that it was in "advanced negotiations" with lenders about a new £150m loan, around £40m of which would be used to repay the bridge loan announced on 12 February.

Looking to protect and advance its interests as the owner of a 30% stake in Debenhams, Sports Direct said in a Wednesday evening announcement that it would offer the embattled department store group a £150m unsecured 12-month term loan on or before 31 March, in return for a further 5% stake or payment of 3% interest on the loan.

The FTSE 250 sportswear retailer, which also owns the House of Fraser department store chain, said £40m could be used to repay the £40m bridge facility and that the remaining £110m would be available for general working capital.

Debenhams' independent shareholders would, it was suggested, decide whether to issue 5% of new shares at the prevailing market price to Sports Direct, increasing its shareholding to almost 35%.

If the 5% share issue was agreed, this would normally trigger full takeover proceedings, but Sports Direct wants a 'whitewash' to be approved by Debenhams' independent shareholders, as it seems reluctant to go so far as this.

If this is approved, the £150m loan would be guaranteed to be interest-free, Sports Direct said, but if not then the loan would bear interest at 3%. Either way, it wants Mike Ashley to be made director and chief executive of Debenhams, as it proposed last week as part of an extraordinary shareholder meeting that would see the removal of all but one of the current board.

Debenhams, which is thought to be looking at a larger refinancing and a Company Voluntary Arrangement that would involve the closure of stores and rent reductions across the rest of its estate, said that any third party loan offer on these terms would require both the consent of its current credit facility lenders and bond noteholders, as well as requiring 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."

Independent retail analyst Nick Bubb said: "Amazingly, Debenhams hasn’t this time sent him away with a flea in his ear".

"Tactically, that might well be the right way to respond, but Debenhams would have to be desperate to take the plan seriously."

Peel Hunt analyst John Stevenson agreed that the Debenhams response this morning was "remarkably open" but he expected the board will still ultimately knock back the proposal.

Sports Direct also increased its stake in Game Digital to 28.43% on Wednesday, from 25.75%.