Monday, 27 April 2009
Its not what you know, but how much you owe
JJB has secured a company voluntary agreement (CVA) with its landlords. The 11th hour deal effectively removes JJB from the top of our list of most likely not to see 2010, and gives it a valuable lifeline.
JJB is able to walk away from its dud, crippling leases and still owed final rents on the 140 shops it has shut, and move to a monthly, rather than quarterly rent agreement. Enormous help in a cash strapped market and something Brown & co should have been 'encouraging' landlords to deal with a long time ago. JJB can use its existing turnover to pay the rents, instead of having to borrow in advance at ultra high rates.
The story shows how the collapse of Woolworth, much like Lehman Brothers in the financial world, changed the rules. In February, a CVA to rescue to U.K. high-street shoe chains Barratts Shoes and Priceless Shoes failed after landlord voted against it because they didn't want to accept lower rents.Now landlords do not want another large chain to go down, and are willing , within reason , to offer help. JJB owes around £60 million. Landlords would have seen little of that if the company fell into administration, so a deal has been struck, not without considerable loss to themselves. But CVA's, a very rare form of pre administration, that really should become more popular. The "pre-pack" administration is a terrible deal for creditors, and an easy way for a companies owners to buy the stores and stock back cheaply,dumping problem staff, suppliers and liabilities and without any onerous leases.
Struggling JJB saw its shares rise 26 per cent - up 4¾p to 23p - after taking steps to avoid bankruptcy, but it is certainly not safe yet. We do not know if it has happened in this case but there is often a reciprocal renegotiation of leases, allowing the landlord to terminate a shop lease, with minimum notice, if a better client comes along. Not a problem in the current climate, but JJB could lose its best sites when the recovery comes. It also loses its bargaining power in shopping centres and high streets and will unlikely to gain any A+ units unless they have been unlet for a very long time.
Still, good news for the 12,000 odd staff of JJB, who retain their jobs for now at least. Prehaps they should consider a transfer to their rival JD Sports who saw their profits rise 9% in 2008 and trading in the new year has started well. The sports and leisure outfit said pre-tax, post-exceptional profit had risen to £38.2m, from £35m.