Member Info for devonplay

Aproval of fees and termination of administration.

To All Known Creditors20August 2019Dear SirsDebenhams Plc (“the Company”) –In AdministrationIn the High Court of Justice,Number 002456of 2019As you are aware,Andrew Johnson, Simon Kirkhope and I were appointed Joint Administrators of the Company on9 April 2019. As set out in the Joint Administrators’ Proposalsdated 28 May 2019,in circumstances where no creditors committee was formed,the Joint Administrators arerequiredto make an application to court for the approval of the basis of theirremuneration.The Joint Administrators accordingly issuedan application in the High Court for the basis of their remuneration to be fixed in accordance with the Insolvency Rules 2016. For informationcreditors should be aware that the Joint Administrators’anticipate that their remuneration will not exceed the level of the fee estimate set out in the Joint Administrators’proposals.In addition,the Joint Administrators (as partofthe same application)are seeking their discharge from liability pursuant to paragraph 98(1) of Schedule B1 of the Insolvency Act 1986, suchdischarge to take effect 28 days after the date on which the final progress report is issuedto creditors of the Company. A preliminary hearing of the application has been listed for 16 September 2019 at 12.30pm.A copy of the application notice is available at https://www.fticonsulting-emea.com/cip/debenhams-plc. Acopy of my witness statement,filed in support of the application,is available to creditors on written request to the Joint Administrators using the following email address at debenhamsplc@fticonsulting.com. Should you have any further queries please do not hesitate to contact Nicholas Rollings of this officeusing the above email address oralternatelyby phone on 020 3727 1135. Yours faithfully,For and on behalf of the Company

https://www.fticonsulting-emea.com/~/media/Files/emea--files/creditors-portal/cip-emea-public/debenhams-plc/letter-to-creditors--application-to-court-20-august-2019.pdf

https://www.rns-pdf.londonstockexchange.com/rns/0320L_1-2019-9-3.pdf

Yet to read this, but it might mean another payment to bond holders.

"What is your view on the comments made in the CityAM"
Intended to sell newspapers.
They were in an impossible situation, so mistakes get made. That's not a crime, it's part of the risks an investor takes on. The fallibility of Boards. They acted to protect the business, so that it was a going concern. Boards are there to provide returns to shareholders, but also protect creditors. On the last roll of the dice Boards will flip and do everything they can to protect creditors and try for an ordely administration. I just don't see anything illegal has transpired. Was it a perfect? I doubt it. Was there an easy option, yes and they did it. Do I think some of the lenders held the debt expecting this outcome? Yes, I'm sure some did. Is any of that illegal? No. It's no different to specualting in the equity of a company. Just with a bit more security. It's still risk capital, but unlike equity (which is all risk capital) it comes with some greater seniority when a company hits the buffers. Collusion will be difficult to prove, so unless there's an obvious break of the Insolvency Act, not just cycnical misuse, then I can understand why Debenhams are confident about winning the case. But as they say, you never know.... and don't invest more than you can afford to lose.

"Thanks devon for the link I’ve also read a few articles regarding the court, the main focus will be on the cva and its impact on landlords, correct me if I’m wrong but i don’t see any recovery for SH including MA whichever the court outcome will be"
My own view is they, Debenhams, will win the case.
I've tried to illustrate the point that even if there was a re-instatement of shareholding it would be in a private company and might still not offer an exit for smaller holders.
SPD/CPC could push the business back into administration and that might allow SPD to buy the assets it wants. If that happens then any distribution will be to creditors first. So nothing or very little going back to the shareholders.
SPD could benefit as the article suggests, either commercialy or buying assets on the cheap.
But, as I say, I expect Debenhams to win. Reversals of this kind are very unusual and why would SPD, unusally, want to support the interests of landlords...that I think it a real weakness in the case. I'm sure the Judge will be asking the same.
"the cva and its impact on landlords" that's the way I undertand it. So yes, I agree with you.

Indie article of yesterday:
https://www.independent.co.uk/news/business/mike-ashley-debenhams-legal-challenge-cva-sports-direct-administration-a9089326.html

"so in conclusion will there be any value for SH if the court rules against Deb"
I'm suggesting there might be for SPD, BUT, if it's private company how will you realise it as a minority shareholder? So you do not only need it turned over, but the stock to be listed or SPD to buy you out. Otherwises what's the exit?
I'm wondering why SPD would want to do that if they can just run it as shareholding in a private business and then cross sell through it. That way they avoid all the cost of the bond cancellation (paying the bonds), get the assets they want, sell those they don't want to reduce leverage.
Just run it as private fiefdom and dump smaller shareholders in to no-man's land. Handle them as dissenting shareholders.
That's my guess, but it's a complex situation. Very few get turned over, even less come back to the market.

No, I dont believe so Pearl. Only if SPD takes control of the private vehicle and then finds away for renegotiating with the bond holders. Offer to buy them out. The nature of the cap table means there's more power with the debt holders than the equity holders. You've seen the evidence of that already.
My money is on SPD contolling the private business in a way that it best for them.
Any attempy to buy the dissenting small holders out would trigger a maturity of the bonds, and if they haven't been renegotiated, several hundreds of million price tag, so if I was them I'd avoid that and just treat it as a subsidiary and try to settle with lenders by realising assests that SPD doesn't want. Then using the remaining vehicle to cross sell. Never offering any opportunity for dividends, never buying it out, and just run it for the long term . Sevice the smaller debt and obigations, asset strip it whilst cross selling .

"SPD hinted at criminal proceedings in their recent results if I am recalling correctly"

"In light of its strong views on the subject Sports Direct continues to examine with its advisors exactly what happened, who was responsible and investigate avenues to seek redress through civil and/or criminal process."

"examine" doesn't mean anything in practical terms. There is no criminal case.

It would still be the position that if the company has engaged in criminal activity lenders would have as many rights, if not more, than shareholders. The Company has contractual obligations via it's debt raise to act in a proper manner and provide accurate information.
These obligations have been manifestly proven by SPD's unwillingness to launch a take over and exceed the "30% change of ownership" clause that would have forced them to mature the bonds. Pay the bond holders.
Every company has obligations beyond it's shareholder. In the case of highly indebted companies, even more so.

"Criminal proceedings"
but it isn't a criminal proceeding and there's no sign that there is one coming. It's a civil proceeding to reverse the administration.
If there was, it would negate any talk of insurance based compensation. Insurers don't pay out against criminal activity.
So just for clarity, who are these criminal proceeding against? If it's the Directors, then it's a negligible amout of money.
There would still be creditors and they would still rank ahead of the shareholders in dissolution of the company.
I think you might be suggesting if there was collusion between the Board and some lenders you should be compensated. But, if that's the issue, then the company, as represented by it's Director, should also compensate bond holders not privy to the arrangement. As those are largest stakeholder, and rank senior, they would again come ahead of equity holders in a dissolution of the company

It still may not diminish that creditors will need to be paid first from any fire sale.
Ordinary shareholders will stilll be at the back of the que.

"If the court case was successful"
It would mean you are small shareholder in a private business that remains heavily indebted.
At best, in the short term, you will likely to be a dissenting shareholders in a private business controlled by SPD.
If the administration is reversed, why would there be any compensation? The company would be back to it's original shareholding, but without a listing.
The LSE would not be compelled to re-list the business.
So you would have no exit opportunity, expect those arising out of the Companies Act covering the interests of minority shareholders. That would require SPD to buy your shares privately. They would do that on a "fair value basis" for dissenting shareholders (as they are required to do by Law) but there's a myriad of ways for them to side step that. From simply running the business like it's a subsidiary, but never taking a dividend to initialting a consolidation of shares that can see your shareholding evaporated. Or simply argueing the "fair value" is 0 as the business is now worthless. It would require another group of shareholders to fight that valuation.
I wouldn't rush out and buy champagne if Debenhams loose this first round, they'll challange it any way, it's a very long and rocky path either way.

Very attractive if they get back to paying that div!
I never intend to encourage anyone.
It does feel that there's value in there. So now we have bond, pref and ordinary holders. LOL
Is there a spread better out there.......? Ha ha ha

I know you like to keep a note on trades. The WA debt shifted in 2 days. £50k a day. Amongst the fastest moving on the platform.

"If I had any spare without having to borrow I'd likely follow you into the debt."
It's priced 85% of par, so you can buy 100p of it for 85p, current yield is 9%, yield to maturity (August '20) 14.3%
The bad news is the £100,000 per go.
You could buy some here in much smaller slugs (£100 initail, then what's about on the market place) https://www.wisealpha.com/market/corporate-bond/rea-holdings/147/GB00BYY8MM32
But it sold out same day (or there abouts)
The equity looked well priced. I might have considered it before the recent rally. But as you say, there's likely to be another opportunty.
If I was in a position to buy equity, as a long time holder, I see potential for 247p with a little bif of luck.
Hope that works out for you John. I'm always interested in capital appreciaition, but for the moment my focus is on securish income. Recent very early retiree. It's just a little bit volatile as an income play and it's not like there's aren't other investable plays. If you know what I mean. Few years, I might come back to the equity. By then I'll have secured enough income to take more risks.

"As I said before a wide margin of safety if you follow the fundamentals."
Agreed. That's why the debt feels attractive. Happy to sit back and take 15% with little volatility and a reasonable amount of risk. And there's plenty of space for shareholders to pony up if needed.

Net Total Debt $190 (15.5x EBITDA)
of course you've got to add the Pref's in their somewhere. Maybe c$60m

All slightly out of date figures.

Against a market cap of £55m

Out of interest John have you done this calculation:

"Valuation: Palm plantation stocks have fallen out of favour with investors in recent years, due largely to weak commodity prices. The Asian Palm Oil Plantation Index fell 12.8% since Jan’18, while the Asian palm plantation sector saw an 18.8% valuation decrease, ending Jun’19 at $10,933/planted ha vs. $13,468/planted ha at end-Dec’17."

"We expect REA to have ca.33,423 mature ha by end-2019,"

Hardman & Co report, June of this year.

Good morning John, there is plenty of debt and yes I think they are likely to need to raise more to money to settle the outstanding August 2020 commitment. Senior Unsecured Debt in REA's case.
Overall it's an interesting issue that many investors, PI's, haven't and don't consider. In my opinion.
There's a process going on out there which has "big money" moving away from listed stocks to having a broader portfolios. They've embraced corporate debt as well as private businesses. One of the reason you see a decade long fall in the number of companies on public listed exchanges, with the exception of Asia. Delisting is speeding up in the West.
At the same time you see a more "acquisitive" stance from bond holders. Where highly leveraged asset rich companies get taken into the hands of bond holders once they default. I'm not saying this applies to REA as such, but it is an interesting business with an asset they've stopped making. Land.
It's just another thing to consider when stock picking.
The belief that shareholders are sovereign should be dismissed and an analysis of the intentions of bond holders should be included. They win assets, shareholders get a bonfire of confetti on defaults.
As of today REA's August 2020's offer a nearly 15% return if they mature.
It's a small position for me, so I haven't done a ton of DD, but I might out of interest explore how much of the 40,000,000 is outstanding. It they do need more cash, my guess is on local, non sterling. The rate they pay is the hand of the gods. Cancelling the Pref. div. and the discount to par on the debt might be a message yet.
Interesting business. Interesting few months ahead.
Bloomberg has a public article on delisting and the changing attitudes of bondholders. I tried to find it, but I'm a little pressed for time this morning. It's worth a read.

"Anyways I agree the gearing is top heavy the Prefs need paying and it's not as if investors are unaware of this."
I believe they've cancelled the Dividend on the Prefs, they don't need to pay those (as far as I know), but they don't have the same luxury on the 8.75% Sterling Notes that are due for repayment in 2020, those mature August next year.
They are trading at a significant discount to par at the moment, although they are very illiquid. That indicates a concern.
I'm not sure if they've bought any back, but the initial issue was £40,000,000.
I haven't read the articles, or looked at the Pref's, so I don't know if there any "accumulation" element associated with a cancelled dividend.