Debenhams is on the verge of securing a £200m funding lifeline from lenders that would position the ailing department store chain to evade the clutches of Mike Ashley, its biggest shareholder.
Sky News has learnt that Debenhams could announce as soon as Friday that it is close to finalising larger-than-expected borrowing facilities as it seeks to shore up its finances.
Sources said a statement to the London Stock Exchange could yet be delayed until next week as the company tries to secure a formal agreement with its lenders.
Debenhams said earlier this month that it was in “advanced negotiations with its current lenders about additional facilities of approximately £150m”.
That figure has increased in recent days to £200m, according to insiders, following an offer made by Mr Ashley’s Sports Direct International to provide an unsecured £150m loan to Debenhams.
The tycoon’s financing would only be available if the department store group issued a further 5% of its shares to Sports Direct and installed Mr Ashley as its chief executive.
Although Debenhams said it would consider the proposal, its lenders have ruled out accepting it, according to people close to the company.
The provision of £200m of new headroom would enable Debenhams to trade through the remainder of the year while pursuing a broader financial restructuring.
That is likely to involve placing the company into a pre-pack administration – wiping out shareholders such as Sports Direct – and immediately selling Debenhams to its lenders.
FTI Consulting, which has been working with the company’s lenders in recent months, has been lined up to handle any administration process.
Mr Ashley took control of House of Fraser through a pre-pack deal last summer.
One source said that if Debenhams pursued that route, its lenders were then likely to use Lazard, the investment bank, to run a formal auction.
A debt-for-equity swap to reduce Debenhams’ £560m of borrowings would also follow, as well as a Company Voluntary Arrangement – led by KPMG – to slash rents and close loss-making stores.
Under the chain’s current plans, just under 20 stores have been earmarked for closure early next year, with dozens more also identified as future casualties.
Such a programme would entail thousands of job losses, adding to the huge number of redundancies in the retail industry during the last 12 months.
The scale of Debenhams’ problems underlines the crisis on Britain’s high streets, with Sir Philip Green’s Arcadia Group among the other prominent retailers considering drastic restructuring plans.
Debenhams has been embroiled in an escalating battle with Mr Ashley in recent months, culminating in his decision to requisition an extraordinary general meeting aimed at ousting most of its board.
The billionaire, who also owns Newcastle United FC, has already forced the departure of Sir Ian Cheshire, Debenhams’ former chairman, and prevented chief executive Sergio Bucher from remaining on the board.
Sources said that part of the new £200m borrowing facilities – which will be provided by a syndicate of banks and hedge funds such as Silver Point – would be used to repay a £40m bridging loan taken out last month.
Debenhams is due to pay a quarterly rent bill next week of roughly £50m, which the company has said it can meet.
The department store chain, which traces its roots back to 1778, is said to believe that its wider financial restructuring would be easier to achieve as a privately owned company than as a listed business with the attendant disclosure obligations.
Magasin du Nord, Debenhams’ Danish retail business, had been put up for sale but would be retained in the short term, according to a person close to the company.
Debenhams has issued a string of profit warnings as trading conditions have deteriorated, prompting Sports Direct to accuse it of misleading investors.
Debenhams declined to comment on Thursday night.