CVAs looking back. Leasehold property issues in CVAs

Transcription

1 Leasehold property issues in CVAs Brian Green KPMG LLP Duncan Grubb Hammerson Plc 12 May 2011 CVAs looking back During 2009 and early 2010 there were a number of high profile CVAs, principally involving high street retailers. Looking back, certain have been successful whereas others have seen mixed results. Stylo Plc Focus DIY Speciality Retail Sixty UK Limited JJB Sports Discover Leisure Blacks Leisure Failure Success

2 CVAs looking back (cont.) What happened since CVA Miss Sixty CVA approval challenged by landlord CVA was quashed by court Blacks Leisure Successful share issue Management working to implement a turnaround plan Reason for this Position of landlord was unfairly compromised Supervisors alleged to act in interests of corporate not creditors Landlords were consulted throughout process Management team were prepared to make tough decisions The value of CVAs The recent history of CVAs has been mixed and a number of companies have failed since implementing a CVA. Stakeholder and public perception is that CVAs may not necessarily provide a better restructuring solution. The number of retail CVAs in 2010 was markedly lower, albeit an increase in the number of property companies using CVAs.

3 The value of CVAs (cont.) CVAs versus formal insolvency proceedings: Principal Advantages of a CVA over insolvency CVA Company often pays rates and some rent on closed stores Creditors (including landlords) are involved throughout process Protect core business Outcome for creditors better May compromise terms of unattractive leases Insolvency Landlord pays rates on closed stores Creditors only notified upon appointment Business value damaged by insolvency Recoveries for creditors lower IP may terminate unattractive leases on day 1 JJB Sports Plc 100 million rights issue Record losses announced Profits warning 31.5 million share issue Further share issue Oct 2009 Dec 2009 Mar 2010 Jun 2010 Sep 2010 Dec 2010 Jan 2011 Mar 2011 Future New CEO appointed Takeover talks JJB CVA II approved Implementation of business turnaround plan Challenging market and trading conditions

4 CVA Ingredients for success Stakeholder support Viable core business Deliver on CVA terms Success 5 Factors Strong Management Team Ability to raise funds CVAs a landlord s perspective What exactly are commercial landlords?

5 Investment companies A key investment choice for global pension funds. Active Property Managers. A Soft Target? Vulnerable to Economic Trends. BCSC estimate that in % of Shopping Centres were at risk of defaulting on loans. Is a CVA the best deal for landlords? An instrument of rescue or restructure? Bespoke remedy, created for the benefit of the distressed company. No required changes to management structure. No assignment costs for the distressed company. Targeted compromise. Who really benefits?

6 CVA s a remedy to the criticism Engagement, communication and co-operation are vital. CVA proposals will be viewed more favourably if they: Share the compromise amongst all creditors. Understand landlords businesses. Allow landlords a share in future success. Allow for negotiation. Communicate the full recovery strategy. CVAs current issues Challenging economic conditions Rent guarantees Attitudes to formal insolvency Clawbacks Moratorium extension

7 CVAs the reality There has been extensive dialogue with landlords and IPs have listened to their concerns. The retail CVA proposition has continued to iterate and develop. Landlords and retailers attitudes towards CVAs vary significantly. There appears a disconnect between public statements from landlords and their actions when voting on CVAs. CVAs the reality (cont.) The use of CVAs is beginning to damage the fabric of trust in the landlord occupier relationship Land Securities May 2010 We have concluded this isn t what we want to see happen Capital Shopping Centres (landlord) on JJB CVA 23 February 2011 The idea that this CVA thing saves jobs is ludicrous CEO, Kingfisher 23 March 2011 Landlords save more than 6,000 jobs by agreeing JJB CVAs British Property Federation on JJB CVA 22 March 2011

8 CVAs the reality (cont.) Corporates and landlords often have competing interests and IPs working to find ways to satisfy these. Landlords have publicly expressed concerns but the level of support for CVAs remains high. A CVA is not a silver bullet and will not, on its own, prevent subsequent business failure. CVAs remain a key tool for effective business restructuring. A properly executed CVA should generate an outcome for creditors (including landlords) in excess of the outcome from a pre pack or traditional insolvency. Disclaimer The information contained in this document is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is provided or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. All services provided by KPMG LLP are subject to the negotiation, agreement and signing of a specific contract