The BPF praised JJB’s and advisor KPMG’s transparent dealings with creditors, and said the inclusion of a “clawback” mechanism in the CVA – a dividend that will see affected landlords compensated for some of their losses – should be held up as an exemplar for future deals.
A CVA is essentially a ‘reduce it or lose it’ deal whereby JJB will agree to pay its creditors a proportion of what it owes them. Landlords of JJB fall into three categories under the CVA. Some will see their properties vacated by April 2012; some will have to accept 50% of the rent due to them for two years, and may see their stores closed, and some will see their properties remain open but with rent paid monthly rather than quarterly.
According to KPMG, creditors are likely to receive between 25p and 29.2p in the pound they are owed under the CVA, but this compares with just 1p if the company falls into administration.
JJB recently said it had secured key support from shareholders, including the Bill and Melinda Gates Foundation, for a £65m fundraising, while Bank of Scotland is also prepared to extend £25m in working capital. However, the support is conditional on a successful CVA vote, which requires backing from 75% of all creditors. Landlords made up the bulk of the creditors and so controlled the vote.
The vote marks the second time that landlords have saved JJB from administration in three years, following a similar CVA in 2008.
Liz Peace, chief executive of the British Property Federation, said: “Landlords treat each CVA on its merits and JJB is a business undergoing significant changes. This is not an opportunistic dumping of stores, rather a genuine attempt at rescuing the business, and should not be seen as a green light for other retailers to restructure their portfolios via a CVA at the expense of both landlords and their competitors.
“It is extremely welcome to see a “clawback” arrangement included in this CVA and we hope that this establishes a precedent that should form part of all future CVAs. After all, it is only fair that having taken a hit and allowed JJB to avoid administration, landlords’ shareholders – many of whom are pensioners – are compensated when the company returns to health.
“The key to a successful CVA is engaging early, openly and transparently with creditors. Of course, landlords never want to see vacant properties and will try to be flexible and to help their tenants. However it should be remembered that landlords are operating under their own financial constraints and are acting in the interests of their own shareholders, which is entirely the right thing to do”.
Malcolm Naish, Director of Real Estate at Scottish Widows Investment Partnership (SWIP), said: "SWIP Real Estate has JJB Sports as a tenant in 11 locations in the UK and is represented in five of our Funds.
“We feel that the company has been open and honest with us about its situation. The majority of our locations will continue to trade and we remain confident that any stores that become void will present us with opportunities to add value for our clients in the near future through re-lettings or extensions for adjacent retailers.
“The potential for an additional dividend in the slimmed down company, if successful, is to be welcomed.
“With our partnership approach, we have enjoyed a constructive landlord and tenant relationship with JJB Sports for several years and hope that this will continue in the future."
Lawrence Hutchings, Hammerson Managing Director UK Retail said: “This is a positive outcome for consumers, stakeholders and investors. We are conscious however, that the hard work in turning JJB around starts today. We look forward to working with JJB, as with all our retailers, to drive sales and footfall at our shopping centres and retail parks to our mutual benefit.”
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