Up to 150 former WH Smith high street stores are to close after the High Court approved a sweeping restructure that could affect thousands of jobs. The retailer, which has 450 stores and employs about 5,000 staff, was bought last year by the private equity firm Modella Capital and rebranded as TG Jones.
Court Approval and Financial Position
On Wednesday, Alex Willson, chief executive of TG Jones, said: “We welcome the court’s approval of our restructuring plan. This decision allows us to move ahead with our turnaround strategy. The plan protects the substantial core of the store estate and makes TG Jones a stronger, more sustainable business. We are incredibly grateful to all the colleagues, partners and stakeholders who engaged constructively throughout the process, and to Modella Capital for its continued financial commitment.”
The High Court judge, Mr Justice Hildyard, approved the restructure despite criticising the short amount of time given for the court to consider the matter. TG Jones’s lawyers told the court on Monday that the retailer’s financial position was “horrendous”. The court heard the business faced a cash shortfall of almost £8m by the end of this week as it faced deadlines on rent, pay for workers and tax.
Valuation Concerns
The judge also said it was “difficult to swallow” the valuation Modella put on TG Jones after the restructure – of no more than £3m – compared with its acquisition value of about £40m only a year ago. Hossein Dabiri, head of court reporting in Europe for credit analysis firm Debtwire, said the approval of the restructure under a “cram down” model, which allows courts to impose a restructuring on dissenting classes of creditors in certain circumstances, “has made it easier for companies to pursue faster and more aggressive restructurings, particularly when renegotiating retail leases”.
Creditor Votes and Impact on Suppliers
More than 80% of landlords controlling TG Jones’s top stores voted to support the deal last week, with most other classes of landlords, who will face steep rental cuts under the plan, voting against it. Several different classes of creditor voted over two days on the restructure, but the plan required approval – judged as backing from 75% or more – from just one class of creditor and from a High Court judge to go ahead. Only 72% of business rates creditors, mostly local councils, backed the plan, and less than a third of general creditors, who include card makers and pen brands, gave it the thumbs up. No landlords owning unwanted stores where rent will be cut to zero or stores will be closed backed the plan. Small suppliers, such as card and toy makers, are to lose at least half the money owed to them by the former WH Smith high street chain under the restructure.
