Debenhams confident of £150m rescue as corporate noir continues

The battle for Debenhams is turning into a real corporate thriller.

The latest development in the saga came this morning when the beleaguered chain announced, via an unscheduled “refinancing update”, that it was in “advanced negotiations” with its existing lenders over a £150m rescue package.

Neither the number, which was already basically out there, nor the company’s confidence about getting the money were what was really important, however.

The purpose of the announcement was less about updating the market than it was about sending a message to Mike Ashley, the founder of Sports Direct, which is the biggest shareholder in Debs. You may remember that last week he tabled a plan to sack the entire board and seize control of the business.

Debs’ announcement was intended to tell Ashley that he should come and have a go if he thinks he’s hard enough. Ashley does so he will.

The company will almost certainly get the money it wants, and on rather better terms than the ruinously expensive £40m emergency bridging loan the lenders ponied up to keep things ticking over while a rescue plan was worked up.

They badly want such a plan to work because they know full well that they’ll get stiffed if Ashley wins.

The company thus has a certain amount of leverage.

Let’s be clear here: it remains in an awful position. Its trading has been poor, its shares are worth about as much as a packet of polo mints, and its overall debt burden is gargantuan. The £150m will come in addition to the £520m that already sits on the books.

But the lenders know they need to play nice. They’re going to take a haircut because a rescue will involve a substantial chunk of their existing £520m being connected into new shares. They’ll accept that happening if they can because they know that if Ashley wins he’s going to skin them.

All of this puts the remaining shareholders in an interesting position. They’re going to get hosed regardless. But with just under 30 per cent of the stock, Ashley needs them, or at least some of them, to fall in line with him for his motion to succeed.

Meanwhile the business limps on. Staff are in the unpleasant position of turning up to work at jobs that may not be there for very long. Customers would be advised to tread very, very carefully and not to buy gift cards, or anything that requires delivery.

We still don’t know how this story will end. What we do know is that the ending won’t be happy.

If this were ever turned into a book it would be one of those noir novels where everyone ends up nursing scars and going home exhausted.