May 17, 2018
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Landlord revolt puts House of Fraser CVA at risk

May 17, 2018

Company voluntary arrangements are ‘the new black’ in the UK this year but it seems that while House of Fraser is-on trend in this respect, it might struggle to get its own CVA through as its landlords are proving uniquely resistant to its plans.

House of Fraser has struggled to generate footfall in its stores - DR

Given that approval for a CVA requires major stakeholders to be on board, and 70% of approval from landlords, there is now widespread speculation over the chances of the plan gaining enough votes.

CVAs have been the way forward for a number of retailers in 2018 with New Look and now Mothercare the most high profile of them. But while the takeover of a majority stake in House of Fraser by C. Banner is partly dependent on the company’s CVA plan getting through, the unique nature of its stores, and other issues, seem to be major stumbling blocks.

The company is struggling to get landlords to agree to the CVA, which is due to begin in June and would see a number of store closures as well as reduced rent on others.

And perhaps that lack of cooperation is no surprise given the nature of the department store chain’s shops. They are universally giant-sized sites over multiple storeys and as such would be extremely difficult for landlords to rent out quickly. Added to that is the issue that some of those landlords may themselves have raised financing on the back of the reliability of long-term rental agreements they have with House of Fraser.

As the BHS failure showed in 2016, when chains with very large stores exit those sites, they often lie empty for some time and then are usually only let out in sections. This also has a depressant effect on the retail area around them.
But the landlords are also reported to be unhappy about the retailer citing financial distress as the reason behind it needing a CVA while simultaneously getting a cash injection from its new majority owner.

We have already had news earlier that landlords were criticising House of Fraser for not consulting them about its CVA plans in advance and the Press Association has now reported that this has since led to a tense meeting at which House of Fraser was surprised by the vehemence of landlord resistance.

And shareholder Sports Direct, which has an 11% stake in the business, has also reacted negatively to House of Fraser’s handling of its announcements. It is set to sue the company as it alleges that it has been unfairly denied access to information about the CVA.

But the department store chain defended its actions saying that Hong Kong stock exchange rules prevented it from discussing anything with the landlords before it announced its CVA strategy.

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