Mar 21, 2011
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JJB Sports' bid for extra time too close to call

Mar 21, 2011

March 21 - A vote on stricken retailer JJB Sports' controversial restructuring plan, that will effectively decide the firm's fate, looks like going to the wire when creditors and investors gather on Tuesday.

JJB, battling for over two years to secure its future, has received public backing for its second company voluntary arrangement in as many years from landlords Hammerson and Peel Holdings, and is also assured of the support of Blane Leisure Limited, its fully owned subsidiary in which a number of leases are held.

But other landlords remain angry, having supported JJB's earlier plan only to see the sportswear retailer plead for more concessions.

"We are not minded to support it, so in all probability we won't," said a source at a leading British property firm.

"It might be close but you wouldn't be surprised if they got it through."

JJB's landlords face a stark choice -- back the retailer's proposal for store closures and reduced rent or see it collapse into administration, threatening 6,100 jobs and Britain's biggest retail failure since Woolworths in early 2009.

For the CVA to become effective JJB needs the support of more than 50 percent of both external unsecured creditors and shareholders.

JJB wants to close 43 stores by April 2012 and have the option of closing a further 46 stores by April 2013. It wants to cut rents to 55 percent of current levels on the 89 stores and pay all rent on a monthly rather than quarterly level. It would retain a core group of 147 stores.

JJB is also offering landlords a share of up to 7.5 million pounds if they back its plan.

Richard Fleming, UK head of restructuring at KPMG and the proposed supervisor of the CVA, has estimated the return to compromised landlords from the CVA at 24.6 pence to 29.2 pence in the pound versus 1.1 pence in the pound from administration.

JJB's major investors, including America's richest man Bill Gates, have agreed in principle to a 65 million pounds equity raising to finance its plans to revamp stores, while the Bank of Scotland has agreed a new 25 million pounds loan agreement and suppliers including adidas and Nike are supportive.

However, these plans are all dependent on the CVA being approved.

Several store groups have been critical of CVAs, which emerged during the recession and have been used by struggling retailers such as outdoor goods group Blacks Leisure and do-it-yourself firm Focus, arguing they advantage weak companies and penalise their own businesses, which are locked into lease obligations.

"The idea that this CVA thing saves jobs is ludicrous. What it is, is postponing and dragging out a process that needs a much faster recycle," said Ian Cheshire, Chief Executive of Kingfisher, Europe's biggest home improvement retailer, at last week's Retail Week conference.

But Philip Green, the billionaire owner of the Arcadia fashion group, said landlords faced a "double edged sword" with regard to CVAs.

"If they actually don't do a CVA they've got to pick up the rates bill as well," he said at the same conference.

"Half the rent and still getting the rates paid is better than having an empty door (shop)."

(Editing by Mark Potter)

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