Debenhams secures cash injection as it battles for survival

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Debenhams storeImage source, Getty Images

Debenhams has secured a cash injection of £40m to buy it extra time as it battles to secure a longer-term deal with lenders.

The struggling department store chain called it a "first step" towards a sustainable future.

The firm - which issued three profit warnings last year - is in talks with lenders over renegotiating its debts.

It is also trying to accelerate plans to close stores and is expected to close around 20 outlets this year.

The extra money will extend the retailer's current £520m borrowing facilities with banks for 12 months and enable it to continue talks over a longer-term refinancing.

News of the funding sent the retailer's shares surging almost 40% in early trade.

Debenhams chief executive Sergio Bucher said: "Today's announcement represents the first step in our refinancing process.

"The support of our lenders for our turnaround plan is important to underpin a comprehensive solution that will take account of the interests of all stakeholders and deliver a sustainable and profitable future."

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "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."

Store closures

High Street retailers have been under increasing pressure as more people choose to shop online and visit stores less.

Debenhams - which has 165 stores and employs about 25,000 people - reported a record pre-tax loss of £491.5m last year and said more recently that sales had fallen sharply over Christmas.

It also announced last year that it would close up to 50 stores within three to five years, putting 4,000 jobs at risk. The chain has not yet named which stores it plans to close.

However, it is now trying to secure an insolvency deal that would enable it to bring forward the closure of around 20 department store chains to this year.

The deal - known as a company voluntary arrangement - would also allow the chain to renegotiate its rents with landlords.

The chain has not yet named which stores it plans to close. Debenhams has 165 stores and employs about 25,000 people.

'Internal dissent'

Mr Khalaf said: "Debenhams' longer term prospects are still in the balance, and recent data showing a deterioration in the UK economy isn't exactly going to help matters.

"For now, Debenhams has kicked the can down the road, but will have to come back for some tough negotiations with quite a lot of internal dissent amongst its stakeholders."

Last year, rival department store chain House of Fraser fell into administration before Mike Ashley, the billionaire Sports Direct founder, bought the department store's assets for £90m.

Mr Ashley is also a major shareholder in Debenhams, with a 29% stake, and he recently joined together with investor Landmark Group to vote the retailer's chairman and chief executive off the board.

Mr Bucher is continuing as chief executive of Debenhams but no longer sits on the board, while Sir Ian Cheshire stepped down immediately as chairman.