Debenhams refinances with high yield bond

Debenhams, the listed UK department store chain, has priced £225m in senior secured notes to part-refinance more than £400m in existing debt.

UK-based retailer Debenhams has issued a high yield bond to refinance existing debt, pricing £225 million (€280.5 million; $381.9 million) in senior secured notes due 2021 at 5.25 percent. The offering was upsized from £200 million and is expected to close on 2 July. 

Proceeds from the sale will enable Debenhams to prepay some of its £420 million in outstanding debt. The retailer, which specialises in fashion clothing and cosmetics and has 243 stores in 28 countries, has plans to extend the rest of its existing bank financing arrangements to October 2018, according to a regulatory filing. 

The refinancing addresses the firm’s £650 million credit facility, which has an outstanding £250 million term loan and a £170 million revolving credit facility (RCF) as of 31 August 2013. Of this, £100 million was due in October 2015, with the rest of the facilities maturing in October 2016. 

Its new capital structure will be comprised of a £450 million RCF due October 2018 and the £255 million high yield bond, which will both rank pari passu, Moody’s said.

The refinancing will lead to an interest charge for the financial year to August 2015 of £22 to £24 million, according to the regulatory filing.

Michael Sharp, chief executive of Debenhams, commented: “This refinancing will allow us to reduce our reliance on traditional bank funding and fulfil our desire to diversify our sources of funding. In addition, we expect to achieve a material saving in interest costs over the life of the notes. The notes offering was well-subscribed and we believe the level of demand reflects the strength of investor confidence in our business and our strategy to build a leading international, multi-channel brand.”

S&P rated the bond BB- and placed the firm’s rating on negative outlook reflecting its view that operational pressures and declining profitability could undermine the retailer’s competitiveness. It said the store chain could face intense pressure from larger and more speciality clothing retailers. 

Moody’s rated the bond Ba3 with a stable outlook. It raised similar concerns, but said that it thought the firm would stabilise its profitability in the coming quarters.

Barclays, Lloyds Bank and the Royal Bank of Scotland were joint global co-ordinators and joint bookrunners. Debenhams was advised by Lazard.