Mothercare announced comprehensive measures to refinance its business and to restructure its UK store portfolio through company voluntary arrangements of certain of its subsidiaries.
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These measures will allow Mothercare to return to a more stable footing, accelerate the transformation of the Group and drive it towards a viable and sustainable future.
Mothercare's Refinancing will provide funding of up to £113.5m, comprising:
- A proposed equity capital raising of £28m expected to be launched in July 2018 by way of a firm placing, placing and open offer (the "New Equity Issue"). The proceeds of the New Equity issue will be used for general corporate purposes. The New Equity Issue has the benefit of immediate standby underwriting from Numis Securities Limited ("Numis")
- Revised committed debt facilities of £67.5m with a final maturity extended to December 2020 and certain interim step downs to be provided by the Company's existing lenders (the "Revised Debt Facilities")
- New £8m shareholder loans from certain of the Company's largest shareholders (the "Shareholder Loans"). Each of the Shareholder Loans is convertible into new ordinary shares in the Company at the option of the relevant shareholder, conditional upon, among other things, the approval by the Company's shareholders of the conversion of the relevant Shareholder Loan as a related party transaction
- A new debtor backed facility of up to £10m from one of the Company's trade partners (the "Trade Partner Loan")
The Shareholder Loans and the Trade Partner Loan will provide immediate access to up to £18m of additional liquidity which will:
- Fully meet the Company's short term liquidity requirements
- Represent a strong signal of commitment and support from certain of the Company's largest shareholders and trade partners, alongside the Company's existing lenders, to support Mothercare through this process
The Refinancing arrangements are conditional on certain events. In particular:
- The New Equity Issue is conditional (amongst other things) upon the completion of the CVA Proposals in respect of certain of the UK subsidiaries and upon approval by the Company's shareholders
- The conversion of a Shareholder Loan into new ordinary shares is conditional (amongst other things) upon approval of the arrangement by the Company's shareholders
- Funds are available immediately under the Revised Debt Facilities, although such funds would cease to be available in the event that either the New Equity Issue or the CVA Proposals in respect of certain of the UK subsidiaries do not complete
The UK Restructuring will involve an accelerated reduction of the UK store estate to reduce losses and rent liabilities and will be effected through the CVA Proposals.
The CVA Proposals are only in respect of three of Mothercare's UK subsidiaries and only relate to certain of Mothercare's UK leasehold property estate and certain Mothercare intra-group creditors.
A company voluntary arrangement is a formal statutory procedure which enables a company to agree with its unsecured creditors a composition in satisfaction of its debts or an arrangement of its affairs which can determine how its debts should be paid and in what proportions.
The launch of the CVA Proposals is not expected to affect the ordinary course of operations of Mothercare and in particular:
- Save for the landlords compromised by the CVA Proposals and certain Mothercare intra-group creditors, no other creditors' claims will be affected
- The process to implement the CVA Proposals is expected to complete in July 2018 with the CVA creditor meetings expected to be held on 1 June 2018
The CVA Proposals and supporting management actions, once completed, are expected to result in:
- A resized store estate with 50 stores to be exited, and material rent reductions on a further 21 stores
- A stabilised financial performance through cost savings and/or eliminated losses
- At least £10m cash inflow from store closures and working capital initiatives
- Further cost savings of at least £5m as the business is right sized
- Total store portfolio of 78 stores by FY20 (73 in FY22) from 137 stores today. ■