Banks bring Pentos to brink of collapse

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The Independent Online
PENTOS, the retailing group that owns Dillons bookshops and Rymans stationers, was on the brink of collapse this weekend, after its bankers indicated that they would not increase its loan facilities.

The company is now understood to be in talks with several potential rescuers including Schroder Ventures, the venture capital arm of its merchant bank adviser Schroder, and Electra Investment Trust.

Candover Investments and Warburg Pincus, the corporate finance boutique that rescued the Amber Day discount chain, are also believed to be taking a look.

The prospects for Pentos worsened on Friday after a meeting between Bill McGrath, the chief executive, and the company's two main banks, Barclays and Midland.

The banks indicated that they were not prepared to increase loan facilities to the group, which are due to expire on Tuesday. Pentos wants the existing £55m facilities rolled over and topped up by an extra £20m.

Until last week, Pentos was confident the top-up would be forthcoming. According to one source close to the talks: "At the 59th minute, the banks started to play hardball."

However, the banks have not come up with a definitive no. Talks are expected to go on until the Tuesday deadline. Sir Kit McMahon, chairman of Pentos, as a former head of the Midland Bank and a former deputy governor of the Bank of England, has considerable influence in banking circles.

Pentos's borrowings are rapidly rising as it stocks up after the post- Christmas sales and heads for quarterly rental payments due at the end of March.

Unless the banks stump up, Pentos faces receivership, some kind of equity injection from a third party, or a trade sale. The US discount bookseller Barnes & Noble has been interested in the past.

A rights issue looks impossible as the shares are languishing at 8p. Shareholders are still smarting after stumping up 25p a share for a previous emer-gency rights issue in March. Pentos also aroused controversy in December, when it ring-fenced its Athena poster chain and put it into receivership. Athena debts were not honoured by the parent company. This was a perfectly legal move, but one that sparked accusations of poor business ethics.

Schroder is understood to be looking at various options for the company, which also owns an office furniture-making subsidiary. These range from a fresh equity injection to a rescue involving mezzanine finance.

Dillons, which also owns Hatchards, is the second-largest bookseller after WH Smith, with 149 branches and annual sales of more than £140m.

All parties agree that the business is worth much more as a going concern than if it were put into receivership. The shop leases would revert to landlords, while the stock is on sale or return and would be claimed back by publishers.

Mr McGrath, recruited from Wickes a year ago, is regarded in the City as doing a good job. But he is handicapped by having no finance director, following the ousting of Clive Gregory.

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