New Look Retail Holdings has launched a CVA proposal to seek approval from landlords and unsecured creditors to reset 402 UK stores to a turnover rent model. Nigel Oddy, Chief Executive Officer, said: “We are launching this CVA out of absolute necessity and are calling on our landlords to agree a turnover rent model for our stores which will put us into a position to be able to complete a financial restructuring agreed with our creditors that will secure the future of New Look and our employees. The proposal to landlords is to rebase our rental cost base through a turnover-based model that aligns future performance and reflects the wider retail market. COVID-19 has changed the retail environment beyond recognition, accelerating the permanent structural shift in customer spend and behaviour from physical retail to online, which we have seen in recent trading. Despite this, we still fundamentally believe the physical store has a significant part to play in the overall retail market and our omnichannel strategy. We remain committed to the high street and serving our customers through our portfolio of local, conveniently-located stores in towns across the UK. However, the magnitude and speed of the shift in consumer behaviour and confidence nationwide requires a change in the way leases are structured in order to manage uncertainty so that stakeholders share both risk and upside and to ensure continued business viability. We have been in discussions with our landlords regarding a required move to turnover-based rents since May. They have given us valuable and constructive feedback, and our CVA proposal recognises this in a number of material changes we have made since our initial proposal. The proposal we have launched today would relieve the financial pressure on New Look as we navigate the post-COVID landscape, whilst also providing our landlords with greater flexibility over their rental arrangements and ensuring closer alignment of interests with regards to sales recovery. Together, the proposed CVA and the financial recapitalisation will provide the foundations for us to deliver our long-term strategic plans, safeguard over 11,200 jobs, and continue to build on the brand status New Look has built over the past 50 years as one of the UK’s leading womenswear retailers."
The proposal includes enhanced landlord breaks for all stores, providing landlords with the opportunity to exit the lease if they believe they can identify an alternative tenant on improved terms. This offers landlords maximum flexibility. In contrast, the Company will have no additional rights to exit the Re-based Stores until the end of the CVA (after 36 months), and even then only in the event that the store is underperforming. Following consultation with landlords, minimum rents for Re-based Stores in Year 2 will be equivalent to 85% of Year 1 rent paid, whilst minimum rents in Year 3 will be equivalent to 85% of Year 2 rent paid, providing greater certainty and forward visibility of minimum rental level. At the conclusion of the CVA, Re-based Store rents will reset to the higher of CVA turnover rent or market rent.
Daniel Butters, Partner, Deloitte, said: “The retail trading environment in the UK has been under pressure for some time, driven by weaker consumer confidence and competition from online channels. COVID-19 has increased these challenges and accelerated the shift in customer spend from physical retail to online. The turnover rent model better aligns the risk and reward of trading during these uncertain times and the CVA, together with the wider-balance sheet restructuring, provides a stable platform upon which Management’s strategy can be delivered. We have fully engaged with the British Property Federation and its members and their views are reflected in what we believe is a fair proposal to restructure the property obligations of the Company. It is important to stress that no stores will close on day one, and employees and current suppliers will continue to be paid on time and in full.”
