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Update: Debenhams proposes £200M debt-for-equity swap

Debenhams PLC on March 22 said it is seeking approval from bondholders for a £200 million refinancing that could see holders of the department store operator's equity wiped out.

Debenhams said it is seeking the consent of the holders of its 5.25% senior notes due 2021 to amend the facility. Should the proposals be accepted, the company would receive a new secured debt facility of up to £200 million. However, it warned that an agreement could also "result in no equity value for the company's current shareholders."

The solicitation process will remain open until March 28.

It is the latest development in the struggling retailer's efforts to restructure its balance sheet and enact a turnaround plan as it attempts to tackle onerous leases and weak trading. Debenhams' woes have attracted the attention of Sports Direct International PLC, which has become its largest shareholder.

Debenhams on March 11 announced that it was in advanced negotiations with lenders for a new £150 million debt facility. On March 13, Sports Direct, led by Mike Ashley, set out an alternative proposal, offering Debenhams a £150 million unsecured loan in return for an additional 5% stake in the company and the appointment of Ashley as CEO. Debenhams said it would give "careful consideration" to the offer.

Separately on March 22, Sports Direct said it offered to buy Debenhams' Danish business, A/S Th. Wessel & Vett Magasin du Nord, for £100 million in cash.

Sports Direct said the deal would help Debenhams with its short-term liquidity needs and include a 12-month option for Debenhams to repurchase the company at the sale price.

In the release, Sports Direct reaffirmed its proposal for Ashley to become Debenhams CEO and lead the company's turnaround efforts.

Sports Direct invited Debenhams to provide further details of its valuation of Magasin du Nord if it felt the offer was too low. The Guardian reported in July 2018 that Debenhams had priced its Danish arm at £200 million to £250 million.

Debenhams on March 22 responded to Sports Direct's offer, stating that "as with all other proposals received to date from Sports Direct, it does not address the company's funding and restructuring requirement, while balancing the interests of all stakeholders."

"Magasin is a key part of the Debenhams group, is cash flow generative and a meaningful contributor to group profits. As such, Magasin is an important part of any lending proposition and therefore any broader solution that protects value for the group," the company said.

The department store operator said it had remained open to engaging with Sports Direct over the restructuring and had provided "clear guidance" on how it could participate. "This guidance has been repeatedly ignored by Sports Direct," it said.

Debenhams added that there are "obvious concerns with the proposal that Mike Ashley becomes CEO of Debenhams given that Sports Direct owns our direct competitor House of Fraser."