JJB to landlords: halve our rent or we will close

Retailer launches second restructuring scheme in two years
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The Independent Online

JJB has tried to woo landlords with a "claw-back" payment as part of its controversial plans, unveiled yesterday, to avoid collapsing into administration by closing up to 89 stores.

In its second company voluntary arrangement (CVA) – an insolvency procedure – in two years, the sportswear chain plans to close 43 stores by next April, plus a further 46 stores by April 2013 if their performance does not improve.

The troubled retailer, which has 246 shops, has also proposedpaying 50 per cent less rent on these 89 properties, as well as paying monthly rents on all its stores rather than quarterly.

Significantly, however, JJB has aided its cause with a sop that was absent from its successful CVA in 2009, when it ditched 140 stores. It plans to offer the compromised landlords an additional payment of between £2.5m and £7.5m on 24 April 2013, dependent on its market capitalisation.

The accountant KPMG, whichsupervised the previous CVA and is again leading this one, said the clause offered landlords some upside. "We have added in a so-called claw-back clause which allows the compromised landlords to share in the turnaround of the business," said Richard Fleming, the head of restructuring. "In the case of JJB, we estimate the return to compromised landlords to be within a range of 24.6p to 29.2p in the pound versus 1.1p in administration."

Any landlord that manages to find a new tenant simply has to give JJB 45 days to vacate the affected store.

The CVA from JJB, which has lurched from one financial crisis toanother since September 2008, has incensed many landlords. Capital Shopping Centres, which owns the Thurrock shopping centre in Essex, hasalready said it will vote against the CVA, but other landlords fear they would be left with empty units at a time when consumer spending is in the doldrums.

Freddie George, an analyst at Seymour Pierce, said: "Landlords, in our view, have surprisingly agreed to the CVA as the alternative, probably too hard to stomach, was that JJB would be forced into administration."

JJB is thought to be confident of getting the CVA passed as long as key stakeholders and shareholders remain supportive. This is partly because Blane Leisure – a wholly-owned subsidiary and a legal entity to which a number of JJB's leases are assigned – is its largest creditor. More than three-quarters of creditors by value must vote in favour of the CVA on 22 March, in addition to more than 50 per cent of shareholders.

However, a successful vote would merely be the first step to safeguarding the survival of JJB – which is based in Wigan and employs 6,100 staff. In fact, it would count for nothing unless JJB can get investors to support a further equity capital raising of "at least" £31.5m on or before 30 June 2011.

This is in addition to the £31.5m JJB raised earlier this year, which was supported by its five main shareholders, including the Microsoft founder Bill Gates.

With the claw-back, if JJB was to raise a further £31.5m – bringing its combined fund-raising this year to £63m – the retailer would pay creditors 5p for every pound that its market capitalisation rises above £63m. This would be up to a maximum payment of £7.5m.

Liz Peace, the chief executive of the British Property Federation, said the claw-back offer should be included in every CVA, but said it remained to be seen whether landlords will back it. She said: "This is JJB's second bite of the cherry. It disposed of 140 stores through its last CVA two years ago, and so any creditor will be seeking reassurance that this is a lasting solution."