Cerberus Capital Management’s Focus DIY is a step closer to staving off administration after plans to reduce what it owes landlords by £6 million met with approval.
The company's landlords, including British Land and Land Securities, are supporting the UK home improvement retailer’s company voluntary arrangement (CVA), according to a statement from The British Property Federation, a lobbying group that represents property companies.
The CVA, which was put together by BDO Stoy Hayward, would result in Focus paying out £6million in property costs instead of a potential £12 million.
Landlords will do everything they can to be flexible, and this is a prime example of how the industry has changed massively in recent years.
Focus would cancel the leases on 38 stores across the UK and offer its landlords a share of a £3.7 compensation pot among other payments – considerably more than the landlords would receive if Focus were to go into administration.
As part of the arrangement, Focus’ creditors are to extend a £50 million revolving credit facility, which is due to expire at the end of the year.
Focus also wants the landlords of its remaining 180 stores to accept monthly rent payments, rather than quarterly, until 2011.
CVAs are becoming more commonplace during the current downturn, as many owners of commercial property are experiencing situations where tenants are unable to meet lease obligations. Others to have benefited from CVAs include UK sports retailer JJB Sports.
Liz Peace, chief exectuive of the British Property Federation, which represents commercial property landlords, and in this case, companies including British Land, Land Securities and Hammerson, said: “Landlords will do everything they can to be flexible, and this is a prime example of how the industry has changed massively in recent years.”
At the time Focus was acquired by Cerberus in 2007 from London-based Apax Partners and Duke Street Capital, the retailer was struggling and reportedly in need of restructuring to avoid bankruptcy. PEO reported in May 2007 that Focus had been significantly affected by the decline in the DIY market in 2005 and as it was highly leveraged, its problems were exacerbated. It had also reportedly renegotiated its loans in 2006.