The restaurant and retail sector had lost its sparkle for property investors long before Covid-19 but for many this has been, or will be, the final nail in the coffin. Companies which were marginal before this crisis are now facing an extremely challenging time.
Some retailers and restaurants are reacting by way of company voluntary arrangements (CVAs). But are landlords taking the brunt financially from the CVA process?
It doesn’t help that the CVA voting values ascribed to future, as opposed to current, rental debt can be as little as £1. This makes the vote more likely to reach a 75% approval level with the support of other unsecured creditors promised full payment of their outstanding debt and no change to future trading relations.
We saw a landlords’ fightback in the Debenhams CVA, but still no real change in landlords’ power in the process.
Nick Leslau has been leading a fight back on Travelodge dire rent reduction proposals – and Travelodge have now resorted to a CVA which is to be voted on tomorrow, June 19th. It will be interesting to see the fall out. But it again highlights the way that landlords are being forced to shoulder the burden of financial restructuring.
Recent CVAs, including those still to be voted on, include some big names: The Restaurant Group, Poundstretcher, AllSaints.
Are CVAs always “morally fair”? Morality is a big word but one which is being drawn from the hat more and more in this Covid world. Private Equity investment is being structured with high interest shareholder loans at holding company level but guaranteed on the underlying operating business. Often the underlying operating company is sound but is being stripped of value. And the cynic might think that when crisis hits, there is a “get out of jail free” card offered to these investors in terms of a CVA to get rid of rental commitments.
For some the writing is on the wall. And a CVA does not always achieve the necessary turn around. Monsoon Accessorize entered in to a CVA in the middle of last year, but the Covid 19 crisis has since resulted in the company filing for administration on 9th June. It is interesting to note, however, that Peter Simon who set up the first Monsoon store in 1973 almost immediately bought the retailer out of administration via a pre pack deal. The brand yet again reemerges, trimmed down after losing 35 stores and 545 staff but ready to move forward.
CVAs may be on the rise. It is certainly an interesting space to watch.
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