Landlords to decide the fate of Focus as creditors thrash out deal for DIY chain

Published 24th Aug 2009

Focus DIY, the troubled homeware retailer, could be extended a lifeline that could save 5,000 jobs if agreement can be reached today with its creditors, most of whom are owed rent.

Some of the country’s biggest commercial landlords, including British Land and Aviva Investors, will back a proposed company voluntary arrangement at a meeting of the company’s creditors.

Under the proposal, Focus would agree to pay its creditors a proportion of what it owes them.

However, without 75 per cent of creditor support, the company will go under and, since landlords represent 90 per cent of the creditors, they will decide the outcome.

The arrangement will be bitterly opposed by the landlords of 38 stores that have closed, but they will be unable to veto the agreement without the support of unaffected creditors.

One of the landlords told The Times that the plan was “a stitch-up by Cerberus — nothing more”.

Cerberus is Focus’s biggest creditor, according to documents distributed to landlords.

This is the first company voluntary arrangement attempted by a high-profile, private equity-owned business.

The use of the procedure by such a company is significant because businesses of this kind tend to be highly leveraged, which means that the private equity company is likely to be a leading creditor and, therefore, will have a head start in voting through its own proposal.

An agreement with its creditors would result in Focus paying two lump-sum dividends equal to six months of rent on its empty stores, rather than being forced to find the full sum.

Bill Grimsey, the chief executive, said that the move could help to save 5,000 jobs at the DIY chain.

Focus has 180 stores still trading. The 38 closed outlets, of which 16 are sub-let, cost landlords an estimated £12 million a year in unpaid rent.

The retailer would pay empty property rates on the closed stores. The remaining 180 would be allowed to pay rent monthly to help Focus with cashflow.

The arrangement would pave the way for HBOS and GMAC, Focus’s lenders, to grant a two-year extension to a £50 million revolving credit facility that is due to expire at the end of this year.

The lenders had said previously that they would not renew the facility unless the cost burden of the closed stores was removed.

Mr Grimsey said: “The flexibility of our landlords will save thousands of jobs and that’s why we owe it to them to be wholly transparent in all our dealings. We could have looked to close more stores, but we wanted to make this simple and fair.”

Ben Grose, asset manager at British Land, said: “We have a solid relationship with Focus and are keen to see it survive the downturn.”

Chris McCormick, assistant fund manager at Aviva Investors, said: “Our support for Focus is based on them having been frank and honest with us, but also having a solid business model which guarantees a return for our investors.

"Landlords will do whatever possible to help their tenants, but cannot be expected to jeopardise the interests of their own shareholders or investors to shore up any business that doesn’t have a future.”

The biggest commercial property companies are losing an estimated £78.3 million a year, according to the Investment Property Databank.

It estimates that the biggest landlords lost 1,369 tenants through administration in the three months to June.

British Land said last week that loss of rental income from tenants that are struggling to pay remained one of the biggest threats to the commercial property sector, as landlords depend on income from rent to meet loan repayments.

As a safeguard against the owners of internally indebted companies pushing through their own company voluntary arrangement, it must win the support of 50 per cent of creditors by value who are unconnected to the holding company, as well as 75 per cent of creditors by value outright.

Source: ' Times '

View All Latest News