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Carpetright implements CVA and confirms closure of 92 stores

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Carpetright has announced 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”).

• The directors of the Company have finalised the terms of a CVA which is intended to restore the viability of the Group's business model (the "CVA Proposal"). The CVA Proposal will enable the Group to undertake a fundamental restructuring of its property portfolio that the Board believes must be carried out as part of implementing the Group's revised business plan.

• A comprehensive review of the Company's property portfolio has identified 205 sites in the UK that are underperforming and/or on unfavourable lease terms, or, in certain cases, not expected to have significant strategic value to the Company going forward. Of these, 92 sites have been identified for closure in the short term under the CVA Proposal, with the balance of 113 sites being subject to a reduction in rental costs and revised lease terms.

• Save for landlords compromised by the CVA, 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 detailed terms of the CVA Proposal, including details of the creditor and shareholder meetings to implement it, are contained in the CVA Proposal Document that is intended to be made available to all unsecured creditors and shareholders of the Company later today.

• Carpetright will seek creditor approval of the CVA Proposal at a meeting to be held on 26 April 2018. Approval from Carpetright shareholders will be sought at a meeting to be held on 30 April 2018 (“CVA Meetings”).

• In addition, Carpetright currently expects to raise net proceeds of approximately £60 million through an equity capital raising (expected to be by way of a placing and open offer). These proceeds will be used to fund the Group's on-going strategy, reduce indebtedness and cover the costs associated with the CVA. The Company expects to launch the equity capital raising on or around 18 May 2018, after the CVA Meetings, and to have received the proceeds 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.

• 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 meeting is due to take place.

• In addition, a technical breach has been identified with respect to compliance with the borrowing powers in the Company’s Articles of Association (the “Articles”). Today, the Company intends to post a shareholder circular which includes the appropriate resolutions to ratify this breach and to amend its Articles to prevent future breaches. The general meeting will held on 30 April 2018.

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.”

See the full text of the CVA proposal in the articles section.

Source : Carpetright PLC

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12 April 2018

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