KPMG is supporting BHS in its efforts to agree company voluntary arrangement (CVA) proposals in a bid to stave off administration at the beleaguered high street retail chain, which has been hit by high rents and a pensions black hole, putting unsecured creditors at risk of losing £1.3bn
Will Wright, restructuring partner at KPMG and proposed 'supervisor' of the CVA, said: ‘The CVA proposals are one facet of a wider turnaround plan, and specifically tackle one of the business’ largest fixed costs, the onerous lease arrangements across its UK-wide store portfolio.
‘While the company’s store estate is located across favourable retail locations, a number of these leases are unsustainable, predicated on terms which were originally negotiated some decades ago.
‘With the support of its lenders, shareholders and landlords, the company will be able to reshape its debt and operational structure to a model more suited to today’s multi-channel retail environment. The company needs to secure at least 75% creditor approval for these CVAs.’
Under the proposals for the CVA, BHS’s 164 store portfolio across the UK is divided into three main categories, based on the commercial viability and strategic importance of each site.
A total of 77 Category 1 premises will be retained at current rents, which will be paid monthly rather than quarterly for the next three years.
A total of 47 Category 2 premises have been deemed viable if a reduction in rent is obtained. To this end, the leases of 21 properties will be retained at a reduced equivalent monthly rent of 75%, and the leases of 26 properties will be retained at a reduced equivalent monthly rent of 50%.
In addition, a reduced equivalent monthly rent of 25% will be paid for a minimum of ten months at a total of 40 Category 3 premises.
Brian Green, restructuring partner at KPMG and second proposed supervisor of the CVAs, said: ‘Importantly, none of these stores will close on day one, and suppliers will continue to be paid on time and in full.
‘Where rent reductions are achieved, these stores will remain open. It is hoped that the store closure number will be kept to a minimum.’
According to the CVA proposal document made available to BHS creditors, the company’s pensions deficit may be as great as £571m.
It states:’ Without a reduction in BHS's lease obligations as planned under the CVA proposal, the business does not have the working capital capability to meet its debt and working capital requirements beyond the next rent quarter date.’
The creditors will vote on the CVA on 23 March 2016. KPMG says it will spend the next three weeks in talks with creditors to ensure they understand the full detail of the proposal.
