retail

Hedge funds secure bulk of £300m recovered from Debenhams


The hedge funds that acquired control of Debenhams before its collapse last year have received more than two-thirds of the £300m recovered by the department store chain’s administrators, new documents show.

Among the lead creditors are hedge funds Silver Point Capital, Alcentra and GoldenTree, which rank above other creditors such as Debenhams’ two defined benefit pension funds.

Stephen Timms, chair of parliament’s Work and Pensions committee, said there would be “serious questions to answer about whether more could and should have been done to protect members” if the schemes ended up in the Pension Protection Fund.

Unsecured creditors such as landlords, local authorities and suppliers are unlikely to receive anything from Debenhams’ collapse, which resulted in the closure of more than 100 stores and the loss of about 12,000 jobs.

FRP Advisory was appointed administrator in April last year and the retailer was put into liquidation at the start of 2021. FRP’s latest report to Debenhams’ creditors said total distributions were £304m as of October 8.

“[The hedge funds] went into this in 2019 looking to make money out of it,” said one person with knowledge of the situation. “I very much doubt they have done that overall, but they have probably lost a lot less than they might have feared when the pandemic began.”

Silver Point and GoldenTree declined to comment.

The monies recouped from Debenhams’ failure include a net £142m from running down its inventories plus £55m paid by online fashion retailer Boohoo for the chain’s website and brands, and other asset sales.

By far the biggest of these was the £120m sale of Magasin du Nord, Debenhams’ upmarket Danish subsidiary, to privately owned German group Peek & Cloppenburg. The sum was more than initially expected.

Debenhams was carrying about £720m of debt when FRP was appointed, including a £200m facility provided by the hedge funds. That loan ranked above all the other secured debt and carried an interest rate of 12 per cent.

Although other secured creditors approved this, it meant they could not receive any dividend from the administration until the principal plus accrued interest on the facility — a total of £242m — was repaid in full.

Another person with knowledge of Debenhams’ difficulties said Barclays, a longstanding lender to the retailer, had long ago written off its exposure to the company. Barclays declined to comment.

The hedge funds’ interest in the company began in 2018, when it was still listed. They acquired chunks of its revolving credit facility and bonds at a discount from banks and other investors as its financial condition deteriorated.

That allowed them to appoint administrators and in 2019 agree a prepack sale of the company to themselves with a view to closing unprofitable stores and selling more online.

The deal wiped out the equity stake built up by Sports Direct and prompted a furious response from its chief executive Mike Ashley.

Since the Covid pandemic pushed Debenhams into administration for a second time, FRP has accrued more than £5m in fees and disbursements and the eventual total is likely to be higher still. The company did not respond to a request for comment.



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