House of Fraser turns to retail fund Alteri for rescue deal

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A fund which has invested in British retailers including Jones Bootmaker has been approached about backing a rescue of House of Fraser (HoF), the ailing department store chain which employs more than 17,000 people.

Sky News has learnt that Alteri Investors is among a small number of potential providers of new funding which have held talks with HoF in recent days as hopes of a £70m injection from the Chinese owner of Hamleys evaporated.

Sources close to HoF said Alteri was one of several “credible” potential investors, alongside Sports Direct International, the retailer headed by Mike Ashley, which has proposed providing a £50m secured loan.

Alteri, which is backed by the private equity giant Apollo Management, is not regarded by HoF as the current frontrunner to participate in any rescue deal, according to the sources.

Earlier this year, Alteri was reported to have held talks with HoF about the refinancing of the chain.

HoF said on Wednesday that a planned investment by C.banner International had been abandoned and that it was in talks with “alternative investors”, without naming them.

Earlier this week, Sky News revealed that advisers to HoF were courting Mr Ashley – who already holds an 11% stake in the chain – to fund an emergency £50m deal to stave off the ailing department store chain’s collapse.

The increasingly desperate talks come as HoF tries to force through the closure of dozens of shops, a move that will threaten 6000 of the company’s 17,500-strong workforce.

In a letter from Sports Direct dated July 2 which has been seen by Sky News, the company told HoF that it “would like to look at making an alternative offer”.

Sports Direct said it was “willing to structure a transaction on similar terms (subject to due diligence to confirm the level of investment/cash injection required)”.

Mr Ashley’s company added that it had cash resources available for investment and the ability to support HoF in areas such as “warehousing, online sales and the running of the business generally”.

The department store group, which traces its roots back to 1849, is understood to be seeking new financing within the next four weeks.

People close to HoF believe it is likely to collapse into administration without such support.

HoF is understood to require new capital to purchase stock ahead of the crucial Christmas trading period, with its lending banks, led by HSBC, and is said to be reluctant to provide further financing with the company’s survival in the balance.

Mr Ashley has made little secret of his interest in owning HoF outright, having tried to buy it in 2014, when Sanpower gained control.



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Video:
31 House of Fraser stores to close

The terms of a prospective loan are unclear, although insiders believe Mr Ashley is unlikely to sanction financial support for HoF unless there is a clear path to him ultimately acquiring control of the business.

Alternatively, he could calculate that a deal would be easier to effect in the event that HoF goes bust.

Under his stewardship, Sports Direct has accumulated stakes – often through complex financial instruments – in a number of British high street chains, including HoF’s rival, Debenhams, and French Connection.

Last month, HoF, which is currently owned by China’s Sanpower Group, confirmed plans to shut 31 of its 59 British stores through an increasingly controversial mechanism called a Company Voluntary Arrangement (CVA).

HoF employs about 5,000 people directly, with a further 12,500 people working in fashion and beauty brand concessions in its stores.

Its restructuring plans have been rocked by a challenge in the Scottish courts from a group of landlords who are arguing that the restructuring plan imposes unfairly Draconian financial pain on them.

HoF had informally asked store landlords to agree to big rent cuts earlier this year, before signing off plans to conclude a CVA before the June rent quarter day.

If it collapsed, it would be the biggest retail failure for well over a decade, and would come during a tumultuous period for the high street, with jobs being axed at chains including Carpetright, Debenhams, Mothercare and New Look.

The CVA mechanism offers no guarantee of revival, with Toys R Us UK crashing into administration just weeks after its deal was approved earlier this year, with more than 3,000 jobs lost as a result.

Retailers have become casualties of a tough market characterised by rising costs combined with caution among British shoppers.

HoF, one of the best-known names in the British retail industry, has been living a hand-to-mouth existence for some time, with its shareholders periodically providing it with multimillion pound sums to enable it to pay landlords and concession operators.

Last year, it lost nearly £44m as pressure mounted on the business.

The company is carrying ‎hundreds of millions of pounds of debt, including a £350m bond which is publicly traded.

It is run by executive chairman Frank Slevin and Alex Wiliamson, who was brought in from the Goodwood Group last year.

HoF declined to comment, while Alteri could not be reached.



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