CPR.L Regulatory News (CPR)

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THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

Carpetright plc

("Carpetright" or the "Company" or the "Group")

CVA Proposal

Equity capital raise update

Trading update

and

Ratification of technical breach of borrowing limit

Summary

Carpetright is today announcing a proposal to address its legacy property issues and reduce the size of its UK property estate and rental cost base by the implementation of a company voluntary arrangement ("CVA").

Commenting on the CVA Proposal, Wilf Walsh, Carpetright CEO said: 

"These tough but necessary actions will enable us to address the burden of a legacy UK property estate consisting of too many poorly located stores on unsustainable rents and are essential if we are to restore our profitability and deliver a successful turnaround. Carpetright has engaged fully with the British Property Federation on the detail of the CVA Proposal and we thank them for their constructive approach.

"Completion of the CVA and equity financing will enable us to establish an appropriately-sized estate of modernised stores, on economic rents, complemented with a compelling online offer, enabling Carpetright to address the competitive threat from a position of strength. 

"We will remain in close contact with all colleagues to keep them fully informed as we move through this process."

Stephanie Pollitt, Assistant Director of Real Estate Policy, British Property Federation (BPF) comments:

 "These situations are never easy as landlords need to take into consideration the impact on their investors, including those protecting pensioners' savings, as they vote on the CVA proposal.

Carpetright and Deloitte, however, have demonstrated best practice, constructively engaging with the BPF early in the process and ensuring landlords' interests have been properly taken into account. Ultimately, it will be for individual landlords to decide how they will vote on the CVA, but the proposal has sought to find a solution that works for all parties."

This summary should be read in conjunction with the full text of the announcement.

Notes to editors

Carpetright plc is Europe's leading specialist floor coverings and beds retailer. Since the first store was opened in 1988 the business has developed both organically and through acquisition within the UK and other European countries. The Group is organised into two geographical regions, the UK and the Rest of Europe (comprising The Netherlands, Belgium and the Republic of Ireland).

This announcement does not constitute an offer to sell, or a solicitation of offers to purchase or subscribe for, securities in the United States. The securities referred to herein have not been, and will not be, registered under the US Securities Act of 1933, as amended (the "Securities Act"), and may not be offered, exercised or sold in the United States absent registration or an applicable exemption from registration under the Securities Act.

Peel Hunt LLP ("Peel Hunt") is authorised and regulated by the Financial Conduct Authority (the "FCA") and is acting exclusively for the Company and no one else in relation to the matters referred to herein and is not, and will not be, responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the contents of this document or any other matter referred to herein.

Deutsche Bank AG, London Branch ("Deutsche Bank") is authorised under German Banking Law (competent authority: European Central Bank) and, in the United Kingdom, by the Prudential Regulation Authority (the "PRA"). It is subject to supervision by the European Central Bank and by BaFin, Germany's Federal Financial Supervisory Authority, and is subject to limited regulation in the United Kingdom by the PRA and the FCA. Details about the extent of its authorisation and regulation by the PRA, and regulation by the FCA, are available on request or from www.db.com/en/content/eu_disclosures.html. Deutsche Bank is acting exclusively for the Company and no one else in connection with the matters referred to herein, and Deutsche Bank is not, and will not be, responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the contents of this document or any other matter referred to herein.

No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by Peel Hunt or Deutsche Bank or by any of their respective affiliates or agents as to, or in relation to, the accuracy or completeness of this announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefore is expressly disclaimed.

Carpetright plc

("Carpetright" or the "Company" or the "Group")

CVA Proposal

Equity capital raise update

Trading update

and

Ratification of technical breach of borrowing limit

CVA Proposal and equity capital raise update

Further to its announcement of 21 March 2018, the Company is today announcing full details of its CVA proposal.

The directors of the Company have now finalised the terms of the company voluntary arrangement to be proposed to unsecured creditors and shareholders of the Company (the "CVA Proposal"). A company voluntary arrangement or "CVA" is a formal statutory procedure which enables a company to agree with its unsecured creditors a composition in satisfaction of its debts or an arrangement of its affairs which can determine how its debts should be paid and in what proportions.

The terms of the CVA Proposal are contained in a document (the "CVA Proposal Document") that is intended to be made available to unsecured creditors and shareholders of the Company later today by the nominees, Matthew David Smith and Neville Barry Kahn of Deloitte LLP, nominated in relation to the CVA Proposal.

A summary of the key terms of the CVA Proposal follows below:

The Company will remain liable for rates on the closed sites until those sites are surrendered, forfeited or assigned or the leases are terminated on the date which is the earliest possible date on which a break clause could be exercised under the lease. Save as set out above in general terms, the CVA Proposal will not seek to compromise claims of any other creditors.

The launch of the CVA process does not affect the current ordinary course operations of the Group and the business continues to trade as a going concern. The Company is not in and will not be in administration as a result of commencing the CVA process.

The CVA Proposal Document contains notices of meetings of the unsecured creditors and shareholders of the Company (together, the "CVA Meetings") to consider and, if thought fit, approve the CVA Proposal. To become effective, the CVA for the Company requires the approval of the requisite majority of the unsecured creditors of the Company. A majority of 75 per cent. in value of the unsecured creditors of the Company voting in person or by proxy at the creditors' meeting is required. Further, of those creditors of the Company whose claims have been admitted for voting at the creditors' meeting, at least 50 per cent. in value of the unsecured creditors who are unconnected must also vote in favour of the CVA.

A CVA also requires the approval of more than 50 per cent. in value of the shareholders present in person or by proxy and voting at a meeting on the resolution to approve the CVA. However if the outcome of the meeting of shareholders differs from the outcome of the meeting of a company's creditors, the decision of the creditors will prevail, subject to the right of any shareholder to apply to the Court to challenge the approval of the CVA.

Implementation of the CVA will be conditional upon a successful equity capital raising. In order to meet the Company's ongoing funding requirements, the Directors expect that the net proceeds required to be raised under the equity capital raising will be approximately £60 million. These proceeds will be used to fund the Group's on-going strategy, reduce indebtedness and cover the costs associated with the CVA. Carpetright currently expects to launch the equity capital raising and to publish a combined shareholder circular and prospectus on or around 18 May 2018, after the CVA Meetings, and to hold a general meeting of shareholders and to have received the proceeds of the equity capital raising in early June 2018, subject to the CVA Proposal having been approved at each of the meetings as planned and subject to there having been no successful challenge to the CVA Proposal.

The equity capital raising will require agreement from the Company's lenders to grant an extension of the Company's revolving credit facility ("RCF") and the Company is about to start discussions with the lenders in relation to such extension. The Company will also require additional interim funding of up to £15 million so as to ensure that it has sufficient working capital until such time as the proceeds of the equity capital raising have been received. The Company is currently in discussions with a key stakeholder in relation to obtaining this interim funding. Therefore, full implementation of the CVA is also effectively conditional upon (i) the terms of an extension to the RCF being agreed with the lenders and (ii) interim additional funding being secured.

The directors of the Company and the nominees are firmly of the view that the CVA Proposal and the CVA process in general will facilitate a better outcome for creditors than would occur if the Group were placed into administration or liquidation.

The CVA Meeting for creditors of the Company will be held at 2.30 p.m. at Etc. Venues, Riverside Building, Belvedere Road, London SE1 7PB on 26 April 2018.

The CVA Meeting for shareholders of the Company will be held at 10.00 a.m. at Travers Smith LLP, 10 Snow Hill, London EC1A 2AL on 30 April 2018.

A copy of the CVA Proposal Document, following expected publication later today, will be available for inspection at the registered office of the Company at Purfleet Bypass, Purfleet, Essex, RM19 1TT during normal business hours on any business day with effect from today and up to and including the conclusion of the CVA Meetings.

In addition, the CVA Proposal Document will be submitted to and made available on the National Storage Mechanism (which can be accessed at www.morningstar.co.uk/uk/nsm).

Trading update

Since the Company last updated the market on 1 March 2018, trading conditions have remained difficult. However, in-line with the announcement on 1 March 2018, the Group still expects to report a small underlying pre-tax loss for the year ending 28 April 2018 ("FY18"). The Company now expects to provide the market with a scheduled trading update for FY18 on or shortly after 30 April 2018, being the day on which the shareholder meetings are due to take place.

Ratification of technical breach of borrowing limit

A technical issue has arisen in respect of the powers conferred upon the directors of Carpetright by its articles of association (the "Articles") to incur borrowings on behalf of the Company. The Company's Articles contain a borrowing restriction which requires the directors to restrict the borrowings of the Group to two times its adjusted capital and reserves. Whilst carrying out a review of this provision in the context of the CVA, the Directors have become aware that the Group's borrowings are, and have for some time been, technically in excess of this restriction.

This matter can be remedied by shareholders passing a resolution to ratify this technical breach and therefore the Company has today sent a circular to shareholders convening a general meeting on 30 April 2018 to approve such ratification and an amendment to the articles of association to remove this restriction on borrowings. Until this matter is resolved by the passing of these shareholder resolutions, the Company will be unable to incur additional borrowings that it might require to fund the short term working capital requirements of the Group. The Company's lending banks have agreed to relax certain covenants and other terms related to its borrowings in order to address the short term funding shortfall that could otherwise arise. The Directors currently believe that the Group has sufficient working capital available to satisfy its funding requirements up to the date when the matter will be put to a shareholder vote (being 30 April 2018).