New Look CVA plan means deep rent cuts or zero rents for 100s of stores
Aug 26, 2020
Embattled New Look has unveiled its CVA proposal with the aim being to move the majority of UK stores’ rent to a turnover basis to reflect the market environment. But it will be tough on landlords with rents being significantly below current levels.
The retailer confirmed that “following a period of negotiations and material improvements to its proposal to landlords, it is today launching a CVA proposal to seek approval from landlords and unsecured creditors to move 402 "re-based" UK stores to a turnover rent model”.
And it added that in its talks with its lenders and noteholders concerning a debt-for-equity conversion, it has gained the necessary consents to move ahead with its plans and to access new funding worth £40 million.
CEO Nigel Oddy said the CVA is happening “out of absolute necessity” and the proposed new rent deals “will put us into a position to be able to complete a financial restructuring agreed with our creditors that will secure the future of New Look and our employees”.
He added that the pandemic “has changed the retail environment beyond recognition, accelerating the permanent structural shift in customer spend and behaviour from physical retail to online, which we have seen in recent trading”.
So what does the rent proposal mean in practice? “Following advice from property agents and a thorough review of New Look’s store estate, it will categorise leases, with 402 being set at a turnover percentage of up to 12% and the remaining 68 stores moving to nil rent,” we’re told.
That’s a bitter pill for landlords to swallow but the proposal includes “enhanced landlord breaks for all stores, providing landlords with the opportunity to exit the lease if they believe they can identify an alternative tenant on improved terms”.
By contrast, New Look will have no additional rights to exit the re-based stores until the end of the CVA (after 36 months), and even then only in the event that the store is underperforming.
After landlord feedback, the proposal has also been structured to ensure there are no proposed changes to service charges and includes the full settlement of service charge arrears across all categories of stores.
Minimum rents for the stores in year two will be equivalent to 85% of year one rent paid, while in year three they’ll be equivalent to 85% of year two rent paid. At the end of the three years, the rents will reset to the higher of CVA turnover rent or market rent.
The CVA meeting date is scheduled for 15 September and approval requires a vote in favour by at least 75% of unsecured creditor votes. Daniel Butters and Rob Fishman of Deloitte LLP have been appointed to act as Nominees to the CVA.
Butters said: “It is important to stress that no stores will close on day one, and employees and current suppliers will continue to be paid on time and in full.”
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