Woolworths' lenders call in restructuring experts from Deloitte

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The Independent Online

Deloitte's corporate restructuring arm has been called in by two of the troubled high-street group Woolworths' biggest lenders ahead of discussion about the company's business plan and budget for next year.

Burdale Financial, part of Bank of Ireland, and GMAC Commercial Finance appointed Deloitte last week. The two are entitled to be part of negotiations about Woolworths' financial plans after jointly providing £385m to the group as part of its restructuring plan, announced in January. The loan is secured against several assets, including Woolworths' stock.

Deloitte held its first meeting with KPMG, which has been appointed by Woolworths, at the end of last week, and further meetings are expected before the business plan and budget are settled in December. It is not expected that the Deloitte team will meet directly with Steve Johnson, Woolworths' new chief executive, or other board members.

A spokesperson for Woolworths argued that Deloitte's appointment was no surprise as the two lenders were always expected to be part of the discussions about next year's plans. "We are working as normal with our lenders who continue to be supportive. We remain within all of our [banking] facilities. The board of Woolworths Group is comfortable with the financial and cash position of the company."

Woolworths, however, has struggled in recent months. In just the last two weeks, it announced that six directors are to leave as part of Mr Johnson's restructuring plans. Credit insurers have scaled back insurance cover provided to suppliers who trade with the company, which could have implications for the vital Christmas period.

Several retail analysts have expressed concern about the group's future. Following interim results issued in September, for the first half of the financial year, experts at Panmure Gordon said that the next few months will be "squeaky bum time," for the company. Those at Numis said that Mr Johnson has the "toughest of retail challenges on his hands".

Mr Johnson himself described the six-month pre-tax loses of £100m, after a deficit of £63.8m in the same period last year, as "unacceptable", adding that the group needed to "get back to some retail basics". He said that a new strategy for the company will be announced after Christmas.

Some of the analysts, however, have speculated that a recovery needs to be sooner rather than later. Those at Landsbanki wrote at the time of September's results that "the challenging consumer environment will mean that recovery will not be overnight. This could be the last roll of the dice for Woolworths in its current form".

Last week, the group announced that it has appointed a new finance director, who is likely to play a key role in negotiations with creditors in the coming months. Robert McDonald will join the company on 3 November, replacing Stephen East, one of those to go as part of Mr Johnson's reshuffle of his top team. Mr McDonald's last job was as finance director of the UK's biggest pub group, Punch Taverns.

Woolworths' shares have fallen by more than 81 per cent in the last 12 months as equity investors grow increasingly concerned about the the economy. On Friday the shares closed down 7.4 per cent at 3.76p, down from a year high of 21.25p.