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Jessops plc (JSP)

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Tuesday 29 September, 2009

Jessops plc

Restructure Proposals

RNS Number : 8060Z
Jessops plc
28 September 2009

Jessops plc 

28 September 2009



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 £100,000 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:


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;


all alternative methods of financing have been exhausted and the only option remaining is to effect the Proposal; and


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.


The Group is the largest photographic retailer in the UKA 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 £79.0 million, net liabilities of £29.9 million and, for the six month period ended 29 March 2009, losses before tax of £13.0 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 £60 million and an overdraft facility for working capital purposes both due to expire on 31 December 2008 with HSBC. A deferred financing fee of £7 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 £20 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 £52 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 £7 million has been reduced to £5 million and is now due on 31 December 2011.

The Group ended 2008 with £57.4 million of long-term debt due to HSBC, plus an overdraft of £5.4 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: 


Newco will be incorporated and provided with a £54 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. 


In exchange for 47 per cent. of the shares in Newco, HSBC has agreed to forgive £34 million of the new loan facility agreed with Newco, leaving Newco with £20 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. 


Jessops Plc will receive £54 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 £5 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 £100,000 which will be available for distribution to the Shareholders on a liquidation of Jessops Plc. 


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.


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



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