retail

Carpetright shareholder to take on retailer’s debt pile

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The largest shareholder in Carpetright has agreed to take on the company’s substantial debt pile and open talks over long-term funding, providing a degree of certainty to the troubled UK flooring retailer as it pushes to turn itself round.

Carpetright said on Tuesday that Meditor, a private investment vehicle controlled by former hedge fund manager Talal Shakerchi, would purchase its £40.7m revolving credit facility from its current lenders AIB and NatWest. The company was not involved in the talks between Meditor and the lending banks.

It will also provide effective funding for the two banks that provide Carpetright’s £6.5m overdrafts, NatWest and Ulster Bank, in the form of “participation agreements”.

Meditor owns a 29.9 per cent stake in Carpetright and was already an unsecured creditor, having played a pivotal role in the financial restructuring that saved the company from likely administration last year.

The revolving credit facility is secured against freehold property, giving Meditor a higher ranking in Carpetright’s capital structure. Carpetright’s freehold properties are valued at £50m.

Wilf Walsh, chief executive of Carpetright, said Meditor had been “a pretty supportive shareholder” and that the company would be discussing financing options in due course.

These could include refinancing the existing unsecured Meditor facility, which is repayable in July 2020 and carries annual interest of 18 per cent.

Carpetright has been under pressure in recent years from weak demand, an excess of selling space and stiff competition from Tapi Carpets, a privately owned rival controlled by Martin Harris, the son of Carpetright founder Philip Harris. Lord Harris sold his remaining stake in Carpetright in 2014.

After shareholders, including Meditor, stumped up £60m to stabilise Carpetright, it closed more than 90 stores using a company voluntary arrangement, a form of insolvency that allows companies to impose losses on unsecured creditors.

The emergency restructuring has begun to bear fruit, with the group this year reporting a return to sales growth and narrowing its losses. But conditions remain difficult in a market that is highly promotional, dominated by big sale events on key bank holidays.

Carpetright shares remain down more than 90 per cent since the beginning of 2018, and trade at half the price paid by investors who backed the fundraising.

Meditor has not proposed board representation nor asked for any structural changes as a result of acquiring the debt facility. It has said it will now look to “engage with the company with a view to providing a more stable and longer-term funding platform”.

John Stevenson, an analyst at Peel Hunt, Carpetright’s house broker, said Tuesday’s debt deal “takes away any uncertainty regarding the group’s refinancing ahead of peak”.

“Meditor will now engage with management to provide a stable and longer-term financing solution for the group, which we expect to be agreed over the next two to three months,” he added.

Greg Lawless, an analyst at Shore Capital, said: “In our view, this is another staging post in the Carpetright recovery following the CVA and rescue rights issue last year, which gave the company a fighting chance to rebuild profits and cash flow to a more sustainable level.”

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