Restructure Proposals

 

TIDMJSP 
 
RNS Number : 8060Z 
Jessops plc 
28 September 2009 
 

 
 
Jessops plc 
28 September 2009 
 
 
 
 
JESSOPS PLC 
 
 
ANNOUNCEMENT OF PROPOSED SOLVENT RESTRUCTURING 
 
 
 
 
Jessops Plc - Update on financial position and announcement of proposed solvent 
restructuring 
The board of directors (the "Board" or the "Directors") of Jessops Plc announce 
the proposed solvent restructuring of the Jessops group of companies (the 
"Group") (the "Proposal"). The Proposal, which is described below, will involve 
the sale of the Group's main operating company, The Jessop Group Limited, and 
certain other subsidiaries of Jessops Plc to a special purpose vehicle ("Newco") 
(the "Disposal"). HSBC Bank plc ("HSBC" or the "Bank") will own 47 per cent. of 
the shares in Newco, 33 per cent. will be owned by the trustees of The Jessop 
Group Limited Pension and Life Assurance Scheme (1993) (the "Scheme") (the 
"Trustees") (on behalf of the Scheme) pursuant to a regulated apportionment 
arrangement in respect of the Scheme and the remaining 20 per cent. will be 
owned by an employee benefit trust (the "EBT"). The allocation of shares in the 
EBT has not yet taken place and is subject to independent trustee approval, but 
the EBT will be used as part of the long-term incentivisation of the management 
of Newco going forward and its existence is required by the Bank as a condition 
to the Proposal.  The Group Board members will not be assigned shares in the EBT 
at the time of the Disposal and no decision or plan has been made in respect of 
allocation of shares to Group Board members following the Disposal.  The 
Proposal will enable The Jessop Group Limited and certain other subsidiaries of 
Jessops Plc to continue to trade as financially stable businesses with the 
support of HSBC. It is the intention of the Board to put Jessops Plc into a 
solvent liquidation in due course. The Proposal allows for the sum of GBP100,000 
to be available for shareholders of Jessops Plc (the "Shareholders") on such a 
liquidation. If the Proposal does not proceed, the Company will become insolvent 
and there will be no funds available to make any distribution to the 
Shareholders. 
The Proposal is expected to complete and take effect from tomorrow. 
The United Kingdom Listing Authority (the "UKLA") has granted a waiver under 
Listing Rule 10.8 in respect of the requirement to prepare a circular and obtain 
shareholder approval for the Disposal, available only to companies in severe 
financial difficulty. 
In the event that the Proposal cannot be progressed and the Bank ceases to 
provide continued financial support to Jessops Plc, then the Directors believe 
that given that Jessops Plc's financial position is so precarious they will have 
no alternative but to instigate formal insolvency proceedings for Jessops Plc. 
Jessops Plc has confirmed to the UKLA that: 
 
 
+-----------+------------------------------------------------------+ 
| (a)       |     negotiation of the Proposal does not allow time  | 
|           |     for either shareholder approval or for the 20    | 
|           |     business days which would required for           | 
|           |     compliance with the requirement of Listing Rule  | 
|           |     5.2.7;                                           | 
+-----------+------------------------------------------------------+ 
| (b)       |     all alternative methods of financing have been   | 
|           |     exhausted and the only option remaining is to    | 
|           |     effect the Proposal; and                         | 
+-----------+------------------------------------------------------+ 
| (c)       |     by taking the decision to implement the          | 
|           |     Proposal, the Directors are acting in the best   | 
|           |     interests of the Company, Shareholders and       | 
|           |     creditors as a whole and also in the best        | 
|           |     interests of the Group's employees. Unless the   | 
|           |     Proposal is completed the Directors will have no | 
|           |     choice other than to implement an insolvency     | 
|           |     procedure which will leave less value for        | 
|           |     creditors and no value for Shareholders.         | 
+-----------+------------------------------------------------------+ 
  Background 
 
 
The Group is the largest photographic retailer in the UK. A large investment in 
stock up to December 2006 and under-performance of the Group due to difficult 
and uncertain retail trading conditions in early 2007 had resulted in an 
increasing and unsustainable level of debt within the Group. This culminated in 
the announcement on 30 January 2009 that the Directors expected that the Group 
would breach its covenants under its banking facilities in the immediate future 
and were actively engaging the Group's advisers and HSBC to put the business on 
a more stable footing for the future, including discussions regarding the 
possibility of a fundamental restructuring of the Group's debt. As at 29 March 
2009, the Group had gross assets of GBP79.0 million, net liabilities of GBP29.9 
million and, for the six month period ended 29 March 2009, losses before tax of 
GBP13.0 million. 
 
 
On 27 May 2009 and 19 August 2009, the Board updated Shareholders on the 
progress of the discussions with the Bank and reported that it was working with 
the Bank towards a solvent solution for Jessops Plc's business, but that due to 
the historical high level of debt, it was highly unlikely that any value would 
be attributed to Jessops Plc's existing ordinary shares. 
 
 
Discussions with HSBC have now concluded and it has become clear to the Board 
that if the Proposal described in this announcement is not effected immediately, 
Jessops Plc will not be able to avoid formal insolvency proceedings, in which 
case the Shareholders will receive nothing. 
 
 
Current debt facilities 
 
 
On 30 August 2007, the Group entered into a committed loan facility of GBP60 
million and an overdraft facility for working capital purposes both due to 
expire on 31 December 2008 with HSBC. A deferred financing fee of GBP7 million 
was also to be paid in December 2008. These facilities were secured by a fixed 
and floating charge over the Group's assets, which is first ranking to the 
extent of the first GBP20 million of debt with the remaining debt ranking pari 
passu with a fixed and floating charge over the assets of The Jessop Group 
Limited and a pledge over the shares of The Jessop Group Limited granted in 
favour of the Trustees of the Scheme. 
 
 
On 26 September 2008, Jessops Plc renegotiated its banking arrangements to 
extend the expiry date of the loan facility until 31 December 2011. Under the 
terms of the extension, Jessops Plc has committed facilities of GBP52 million 
(the "Committed Facilities") and a revolving overdraft facility for working 
capital purposes provided to The Jessop Group Limited which is repayable on 
demand. The existing security remained in place in respect of these facilities. 
In addition, the deferred financing fee of GBP7 million has been reduced to GBP5 
million and is now due on 31 December 2011. 
 
 
The Group ended 2008 with GBP57.4 million of long-term debt due to HSBC, plus an 
overdraft of GBP5.4 million. Under the loan facility documentation, Jessops Plc 
is obliged to comply with certain financial covenants. The Directors believe 
that in the absence of ongoing extensions of the financial covenant testing 
dates, the financial covenants would be breached (and would continue to be 
breached for the immediately foreseeable future). 
 
 
With the approach of Christmas, the business is entering its most critical 
trading period and as in prior years requires increased supplier credit limits 
to meet its stock requirements for the Christmas peak period. In the absence of 
a fundamental restructuring of the business, suppliers have stated that they are 
unwilling to extend the necessary increased credit limits. In order to secure 
the future of the business and thereby the continued employment of 2,000 people 
nationwide, it is important that the Proposal be implemented immediately. 
 
 
As previously announced on 27 May 2009 and 19 August 2009, the Board has been in 
discussions with its advisers and HSBC regarding options for a fundamental 
restructuring of the Company's debt which it hoped would result in a solvent 
solution for the Group. During these discussions, HSBC did not state that it 
would not allow sufficient time to complete the Disposal in accordance with the 
usual requirements of Chapter 10 of the Listing Rules. 
On 16 September 2009, HSBC confirmed that should the Proposal not be effected 
immediately, it would not make available any further finance to Jessops Plc and 
would withdraw its current facilities. Without HSBC's continued financial 
support, Jessops Plc and the Group will not be in a position to meet their 
obligations as they fall due, would be unable to continue trading and Jessops 
Plc would have no choice but to commence formal insolvency proceedings. 
Prior to 16 September 2009, the Company had not been in a position to seek 
shareholder approval for the Proposal, as HSBC had not confirmed that it was 
willing to proceed with the Proposal and was actively considering other options 
including formal insolvency proceedings. 
 
 
Additionally, KPMG Corporate Finance, who is acting as sponsor to Jessops Plc in 
relation to the Disposal confirms that, in its opinion and on the basis of the 
information available to it, Jessops Plc is in severe financial difficulty and 
that it will not be in a position to meet its obligations as they fall due 
unless the Disposal is effected in accordance with the proposed timetable. 
 
 
Sourcing of Finance 
 
 
Jessops Plc has attempted, without success, to refinance its current borrowing 
facilities. The Board has also considered the possibility of equity fund 
raisings. However, in light of the Group's current financial position this does 
not, in the opinion of the Board, constitute a viable alternative. It is now 
clear to the Board that unless an urgent solution is identified that meets the 
approval, and thereby gains the support of, the Bank, the Directors will have no 
choice but to instigate formal insolvency proceedings. Accordingly, the Board 
has formulated a proposal set out below to restructure the Group in order to 
attempt to ensure its ongoing survival and HSBC has agreed to assist in its 
implementation. 
 
 
 
 
The Proposal 
 
 
The Board has been advised that in light of the serious financial position of 
Jessops Plc, it has a primary duty to act in the best interests of Jessops Plc's 
creditors. In order to achieve the best results for creditors, two courses of 
action were identified by the Board: (i) to implement an appropriate insolvency 
procedure or (ii) to attempt a solvent restructuring of the Group. The Board has 
concluded that a solvent restructuring of the Group is the preferable route. 
 
 
The Proposal is as follows: 
 
 
+------+-----------------------------------------------------------------------+ 
| (a)  |        Newco will be incorporated and provided with a GBP54 million   | 
|      |        loan facility from HSBC with which it will acquire the         | 
|      |        majority of the assets of Jessops Plc, being the shares of     | 
|      |        Camera Bond Limited (the "Shares"), a direct subsidiary of     | 
|      |        Jessops Plc and the indirect holding company of The Jessop     | 
|      |        Group Limited, the Group's main operating company and procure  | 
|      |        the repayment of intercompany loans owed to Jessops Plc by the | 
|      |        Group.                                                         | 
|      |                                                                       | 
+------+-----------------------------------------------------------------------+ 
| (b)  |        In exchange for 47 per cent. of the shares in Newco, HSBC has  | 
|      |        agreed to forgive GBP34 million of the new loan facility       | 
|      |        agreed with Newco, leaving Newco with GBP20 million of term    | 
|      |        debt. A further 33 per cent. of the shares will be owned by    | 
|      |        the Trustees (on behalf of the Scheme) pursuant to a regulated | 
|      |        apportionment arrangement in respect of the Scheme and 20 per  | 
|      |        cent. by an employee benefit trust. This will enable The       | 
|      |        Jessop Group Limited and certain other Group subsidiaries to   | 
|      |        continue to trade as financially stable businesses with        | 
|      |        on-going provision of debt and working capital facilities from | 
|      |        HSBC.                                                          | 
|      |                                                                       | 
+------+-----------------------------------------------------------------------+ 
| (c)  |        Jessops Plc will receive GBP54 million from the sale of the    | 
|      |        Shares and repayment of the intercompany loans and will use    | 
|      |        this amount to repay the Committed Facilities and outstanding  | 
|      |        accrued interest. HSBC has agreed to waive the deferred        | 
|      |        financing fee of GBP5 million which would otherwise become due | 
|      |        on 31 December 2011. Jessops Plc will waive any remaining sums | 
|      |        due to it from the Group. Newco will provide GBP100,000 which  | 
|      |        will be available for distribution to the Shareholders on a    | 
|      |        liquidation of Jessops Plc.                                    | 
|      |                                                                       | 
+------+-----------------------------------------------------------------------+ 
| (d)  |        The disposal of the majority of the assets of the Group would  | 
|      |        ordinarily require the consent of the majority of the          | 
|      |        Shareholders in a general meeting and the posting of a         | 
|      |        circular. The UKLA has, however, agreed under Listing Rule     | 
|      |        10.8.1 not to require Jessops Plc to obtain the approval of    | 
|      |        the Shareholders for the Disposal as it has no alternative but | 
|      |        to dispose of these assets in order to avoid an insolvency     | 
|      |        process.                                                       | 
|      |                                                                       | 
+------+-----------------------------------------------------------------------+ 
| (e)  |        Following the Disposal as outlined above, the Board is         | 
|      |        intending to put Jessops Plc into a solvent liquidation in due | 
|      |        course.                                                        | 
|      |                                                                       | 
+------+-----------------------------------------------------------------------+ 
 
 
The Directors are of the opinion that, in the event the Proposal is 
implemented, the working capital available to Jessops plc (which will no longer 
have any trading subsidiaries) is sufficient for at least 12 months from the 
date of this announcement (although it is proposed that Jessops plc would be 
placed into solvent liquidation before the end of such 12 month period).  The 
Board anticipates that all liabilities of Jessops plc would be met following 
implementation of the Proposal and intends to put Jessops plc into solvent 
liquidation before the end of this year. 
The Disposal could have been implemented following a delisting under Listing 
Rule 5.2.7.  However, such a course of action would have necessitated a further 
delay of 20 business days which the Bank would not permit. 
The Directors concur with this view as they consider a delay of 20 business days 
would jeopardise continuity of supplies and place the business at serious risk 
of insolvency. 
The Directors believe that the Proposal is in the best interests of the Company 
taking into account the interests of creditors, to whom the Directors have a 
primary duty in this situation, the Shareholders and also the best interests of 
employees of the Group. 
 
 
- Ends - 
 
 
 
 
 
 
 
 
For further information please contact 
 
 
Jessops plc 
David Adams 
Jessop House 
98 Scudamore Road 
Leicester 
LE3 1TZ 
0116 232 6000 
 
 Brunswick Group 
 Jonathan Glass 
 David 
Litterick 
 020 7404 5959 
 
 
KPMG Corporate Finance 
Chris Belsham 
020 7694 8527 
 
 
 
 
Note: KPMG Corporate Finance, a division of KPMG LLP which is authorised and 
regulated by the Financial Services Authority for investment business 
activities, is acting for Jessops plc as sponsor in relation to the Disposal and 
is not acting for any other person in relation to such Disposal.  KPMG Corporate 
Finance will not be responsible to anyone other than Jessops plc for providing 
the protections afforded to its clients or for providing advice in relation to 
the contents of this announcement or any transaction or arrangement referred to 
herein. 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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