CVA looms for Blacks after O'Neill unit folds

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Blacks Leisure, the outdoor retail specialist, could put itself through a company voluntary arrangement (CVA) before the end of next month to safeguard its future after it placed its ailing boardwear business, Sandcity, into administration yesterday.

Following the appointment of KPMG as administrators to Sandcity, which operates 11 loss-making O'Neill shops, options are narrowing for the company and a store closure programme, potentially accompanied by a CVA, looks likely. Out of the 115 Blacks, 250 Millets and more than 30 Freespirit fascias operated by the company, Blacks Leisure is believed to have around 80 under-performing stores.

A CVA is an insolvency procedure that enables a company to agree with its creditors how its debts should be paid and is seen as a less drastic measure than administration.

Retailers typically use a CVA - which at least 75 per cent of creditors have to approve - to continue trading after offloading their unprofitable stores.

Blacks Leisure has been struggling for some time, although the bulk of its problems relate to its boardwear division's struggling O'Neill and Freespirit stores.

On Tuesday, the retailer said it had entered into a standstill agreement with its bank Lloyds Banking Group until 30 November, but this is subject to it delivering a restructuring plan that would see the company exit its loss-making stores by 30 October. On Tuesday, Blacks Leisure said it expected to breach one of its banking covenants at the end of September.

The retailer declined to comment beyond a statement yesterday. The retail group said it had exited the O'Neill wholesale business, converted a number of boardwear stores to its outdoor fascias and reduced its cost base through cutting the management functions of Sandcity and Freespirit. Blacks Leisure said: "A disposal of the boardwear division has also been pursued but serious interest in this business was low and structural issues made a discrete sale of this business difficult to achieve."

In a trading update, the group said it had "under-performed against budget for the six months of the financial year to 31 August". It said that full-year market expectations can still be met, but this will be dependent on the bank waiving the expected covenant breach.

KPMG said it would continue to trade Sandcity's 11 O'Neill stores, which employ 90 people, and no redundancies had been made. It will seek a buyer of the business as a going concern.

Richard Fleming, the UK head of restructuring at KPMG, said: "The outdoor leisure market has become increasingly competitive in recent years and, indeed, the leisure market has been affected profoundly by the recession as consumers rein in discretionary spend to focus on more essential items."

Sports Direct, which is controlled by Mike Ashley, owns 29.9 per cent of Blacks Leisure and there has been speculation it may bid for the company. Mr Ashley, who also owns Newcastle United, made a takeover approach in March for Blacks Leisure, but a full-blown bid did not materialise.

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