Restructure Proposals
September 29 2009 - 2:00AM
UK Regulatory
TIDMJSP
RNS Number : 8060Z
Jessops plc
28 September 2009
Jessops plc
28 September 2009
JESSOPS PLC
ANNOUNCEMENT OF PROPOSED SOLVENT RESTRUCTURING
Jessops Plc - Update on financial position and announcement of proposed solvent
restructuring
The board of directors (the "Board" or the "Directors") of Jessops Plc announce
the proposed solvent restructuring of the Jessops group of companies (the
"Group") (the "Proposal"). The Proposal, which is described below, will involve
the sale of the Group's main operating company, The Jessop Group Limited, and
certain other subsidiaries of Jessops Plc to a special purpose vehicle ("Newco")
(the "Disposal"). HSBC Bank plc ("HSBC" or the "Bank") will own 47 per cent. of
the shares in Newco, 33 per cent. will be owned by the trustees of The Jessop
Group Limited Pension and Life Assurance Scheme (1993) (the "Scheme") (the
"Trustees") (on behalf of the Scheme) pursuant to a regulated apportionment
arrangement in respect of the Scheme and the remaining 20 per cent. will be
owned by an employee benefit trust (the "EBT"). The allocation of shares in the
EBT has not yet taken place and is subject to independent trustee approval, but
the EBT will be used as part of the long-term incentivisation of the management
of Newco going forward and its existence is required by the Bank as a condition
to the Proposal. The Group Board members will not be assigned shares in the EBT
at the time of the Disposal and no decision or plan has been made in respect of
allocation of shares to Group Board members following the Disposal. The
Proposal will enable The Jessop Group Limited and certain other subsidiaries of
Jessops Plc to continue to trade as financially stable businesses with the
support of HSBC. It is the intention of the Board to put Jessops Plc into a
solvent liquidation in due course. The Proposal allows for the sum of GBP100,000
to be available for shareholders of Jessops Plc (the "Shareholders") on such a
liquidation. If the Proposal does not proceed, the Company will become insolvent
and there will be no funds available to make any distribution to the
Shareholders.
The Proposal is expected to complete and take effect from tomorrow.
The United Kingdom Listing Authority (the "UKLA") has granted a waiver under
Listing Rule 10.8 in respect of the requirement to prepare a circular and obtain
shareholder approval for the Disposal, available only to companies in severe
financial difficulty.
In the event that the Proposal cannot be progressed and the Bank ceases to
provide continued financial support to Jessops Plc, then the Directors believe
that given that Jessops Plc's financial position is so precarious they will have
no alternative but to instigate formal insolvency proceedings for Jessops Plc.
Jessops Plc has confirmed to the UKLA that:
+-----------+------------------------------------------------------+
| (a) | negotiation of the Proposal does not allow time |
| | for either shareholder approval or for the 20 |
| | business days which would required for |
| | compliance with the requirement of Listing Rule |
| | 5.2.7; |
+-----------+------------------------------------------------------+
| (b) | all alternative methods of financing have been |
| | exhausted and the only option remaining is to |
| | effect the Proposal; and |
+-----------+------------------------------------------------------+
| (c) | by taking the decision to implement the |
| | Proposal, the Directors are acting in the best |
| | interests of the Company, Shareholders and |
| | creditors as a whole and also in the best |
| | interests of the Group's employees. Unless the |
| | Proposal is completed the Directors will have no |
| | choice other than to implement an insolvency |
| | procedure which will leave less value for |
| | creditors and no value for Shareholders. |
+-----------+------------------------------------------------------+
Background
The Group is the largest photographic retailer in the UK. A large investment in
stock up to December 2006 and under-performance of the Group due to difficult
and uncertain retail trading conditions in early 2007 had resulted in an
increasing and unsustainable level of debt within the Group. This culminated in
the announcement on 30 January 2009 that the Directors expected that the Group
would breach its covenants under its banking facilities in the immediate future
and were actively engaging the Group's advisers and HSBC to put the business on
a more stable footing for the future, including discussions regarding the
possibility of a fundamental restructuring of the Group's debt. As at 29 March
2009, the Group had gross assets of GBP79.0 million, net liabilities of GBP29.9
million and, for the six month period ended 29 March 2009, losses before tax of
GBP13.0 million.
On 27 May 2009 and 19 August 2009, the Board updated Shareholders on the
progress of the discussions with the Bank and reported that it was working with
the Bank towards a solvent solution for Jessops Plc's business, but that due to
the historical high level of debt, it was highly unlikely that any value would
be attributed to Jessops Plc's existing ordinary shares.
Discussions with HSBC have now concluded and it has become clear to the Board
that if the Proposal described in this announcement is not effected immediately,
Jessops Plc will not be able to avoid formal insolvency proceedings, in which
case the Shareholders will receive nothing.
Current debt facilities
On 30 August 2007, the Group entered into a committed loan facility of GBP60
million and an overdraft facility for working capital purposes both due to
expire on 31 December 2008 with HSBC. A deferred financing fee of GBP7 million
was also to be paid in December 2008. These facilities were secured by a fixed
and floating charge over the Group's assets, which is first ranking to the
extent of the first GBP20 million of debt with the remaining debt ranking pari
passu with a fixed and floating charge over the assets of The Jessop Group
Limited and a pledge over the shares of The Jessop Group Limited granted in
favour of the Trustees of the Scheme.
On 26 September 2008, Jessops Plc renegotiated its banking arrangements to
extend the expiry date of the loan facility until 31 December 2011. Under the
terms of the extension, Jessops Plc has committed facilities of GBP52 million
(the "Committed Facilities") and a revolving overdraft facility for working
capital purposes provided to The Jessop Group Limited which is repayable on
demand. The existing security remained in place in respect of these facilities.
In addition, the deferred financing fee of GBP7 million has been reduced to GBP5
million and is now due on 31 December 2011.
The Group ended 2008 with GBP57.4 million of long-term debt due to HSBC, plus an
overdraft of GBP5.4 million. Under the loan facility documentation, Jessops Plc
is obliged to comply with certain financial covenants. The Directors believe
that in the absence of ongoing extensions of the financial covenant testing
dates, the financial covenants would be breached (and would continue to be
breached for the immediately foreseeable future).
With the approach of Christmas, the business is entering its most critical
trading period and as in prior years requires increased supplier credit limits
to meet its stock requirements for the Christmas peak period. In the absence of
a fundamental restructuring of the business, suppliers have stated that they are
unwilling to extend the necessary increased credit limits. In order to secure
the future of the business and thereby the continued employment of 2,000 people
nationwide, it is important that the Proposal be implemented immediately.
As previously announced on 27 May 2009 and 19 August 2009, the Board has been in
discussions with its advisers and HSBC regarding options for a fundamental
restructuring of the Company's debt which it hoped would result in a solvent
solution for the Group. During these discussions, HSBC did not state that it
would not allow sufficient time to complete the Disposal in accordance with the
usual requirements of Chapter 10 of the Listing Rules.
On 16 September 2009, HSBC confirmed that should the Proposal not be effected
immediately, it would not make available any further finance to Jessops Plc and
would withdraw its current facilities. Without HSBC's continued financial
support, Jessops Plc and the Group will not be in a position to meet their
obligations as they fall due, would be unable to continue trading and Jessops
Plc would have no choice but to commence formal insolvency proceedings.
Prior to 16 September 2009, the Company had not been in a position to seek
shareholder approval for the Proposal, as HSBC had not confirmed that it was
willing to proceed with the Proposal and was actively considering other options
including formal insolvency proceedings.
Additionally, KPMG Corporate Finance, who is acting as sponsor to Jessops Plc in
relation to the Disposal confirms that, in its opinion and on the basis of the
information available to it, Jessops Plc is in severe financial difficulty and
that it will not be in a position to meet its obligations as they fall due
unless the Disposal is effected in accordance with the proposed timetable.
Sourcing of Finance
Jessops Plc has attempted, without success, to refinance its current borrowing
facilities. The Board has also considered the possibility of equity fund
raisings. However, in light of the Group's current financial position this does
not, in the opinion of the Board, constitute a viable alternative. It is now
clear to the Board that unless an urgent solution is identified that meets the
approval, and thereby gains the support of, the Bank, the Directors will have no
choice but to instigate formal insolvency proceedings. Accordingly, the Board
has formulated a proposal set out below to restructure the Group in order to
attempt to ensure its ongoing survival and HSBC has agreed to assist in its
implementation.
The Proposal
The Board has been advised that in light of the serious financial position of
Jessops Plc, it has a primary duty to act in the best interests of Jessops Plc's
creditors. In order to achieve the best results for creditors, two courses of
action were identified by the Board: (i) to implement an appropriate insolvency
procedure or (ii) to attempt a solvent restructuring of the Group. The Board has
concluded that a solvent restructuring of the Group is the preferable route.
The Proposal is as follows:
+------+-----------------------------------------------------------------------+
| (a) | Newco will be incorporated and provided with a GBP54 million |
| | loan facility from HSBC with which it will acquire the |
| | majority of the assets of Jessops Plc, being the shares of |
| | Camera Bond Limited (the "Shares"), a direct subsidiary of |
| | Jessops Plc and the indirect holding company of The Jessop |
| | Group Limited, the Group's main operating company and procure |
| | the repayment of intercompany loans owed to Jessops Plc by the |
| | Group. |
| | |
+------+-----------------------------------------------------------------------+
| (b) | In exchange for 47 per cent. of the shares in Newco, HSBC has |
| | agreed to forgive GBP34 million of the new loan facility |
| | agreed with Newco, leaving Newco with GBP20 million of term |
| | debt. A further 33 per cent. of the shares will be owned by |
| | the Trustees (on behalf of the Scheme) pursuant to a regulated |
| | apportionment arrangement in respect of the Scheme and 20 per |
| | cent. by an employee benefit trust. This will enable The |
| | Jessop Group Limited and certain other Group subsidiaries to |
| | continue to trade as financially stable businesses with |
| | on-going provision of debt and working capital facilities from |
| | HSBC. |
| | |
+------+-----------------------------------------------------------------------+
| (c) | Jessops Plc will receive GBP54 million from the sale of the |
| | Shares and repayment of the intercompany loans and will use |
| | this amount to repay the Committed Facilities and outstanding |
| | accrued interest. HSBC has agreed to waive the deferred |
| | financing fee of GBP5 million which would otherwise become due |
| | on 31 December 2011. Jessops Plc will waive any remaining sums |
| | due to it from the Group. Newco will provide GBP100,000 which |
| | will be available for distribution to the Shareholders on a |
| | liquidation of Jessops Plc. |
| | |
+------+-----------------------------------------------------------------------+
| (d) | The disposal of the majority of the assets of the Group would |
| | ordinarily require the consent of the majority of the |
| | Shareholders in a general meeting and the posting of a |
| | circular. The UKLA has, however, agreed under Listing Rule |
| | 10.8.1 not to require Jessops Plc to obtain the approval of |
| | the Shareholders for the Disposal as it has no alternative but |
| | to dispose of these assets in order to avoid an insolvency |
| | process. |
| | |
+------+-----------------------------------------------------------------------+
| (e) | Following the Disposal as outlined above, the Board is |
| | intending to put Jessops Plc into a solvent liquidation in due |
| | course. |
| | |
+------+-----------------------------------------------------------------------+
The Directors are of the opinion that, in the event the Proposal is
implemented, the working capital available to Jessops plc (which will no longer
have any trading subsidiaries) is sufficient for at least 12 months from the
date of this announcement (although it is proposed that Jessops plc would be
placed into solvent liquidation before the end of such 12 month period). The
Board anticipates that all liabilities of Jessops plc would be met following
implementation of the Proposal and intends to put Jessops plc into solvent
liquidation before the end of this year.
The Disposal could have been implemented following a delisting under Listing
Rule 5.2.7. However, such a course of action would have necessitated a further
delay of 20 business days which the Bank would not permit.
The Directors concur with this view as they consider a delay of 20 business days
would jeopardise continuity of supplies and place the business at serious risk
of insolvency.
The Directors believe that the Proposal is in the best interests of the Company
taking into account the interests of creditors, to whom the Directors have a
primary duty in this situation, the Shareholders and also the best interests of
employees of the Group.
- Ends -
For further information please contact
Jessops plc
David Adams
Jessop House
98 Scudamore Road
Leicester
LE3 1TZ
0116 232 6000
Brunswick Group
Jonathan Glass
David
Litterick
020 7404 5959
KPMG Corporate Finance
Chris Belsham
020 7694 8527
Note: KPMG Corporate Finance, a division of KPMG LLP which is authorised and
regulated by the Financial Services Authority for investment business
activities, is acting for Jessops plc as sponsor in relation to the Disposal and
is not acting for any other person in relation to such Disposal. KPMG Corporate
Finance will not be responsible to anyone other than Jessops plc for providing
the protections afforded to its clients or for providing advice in relation to
the contents of this announcement or any transaction or arrangement referred to
herein.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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