CVA speculation mounts as House of Fraser appoints KPMG

Speculation is mounting that House of Fraser could be the next major high street player to seek a CVA (Company Voluntary Arrangement) after it confirmed that it had appointed KPMG to advise on its options for the future.

According to Sky News while the accountancy firm has been appointed, a CVA is not the only option for the department store but it is a possibility.

The CVA is a legal mechanism that allows companies to pay back a proportion of their debt over time and it must be agreed by the majority of creditors. Retailers, such as New Look, are using the arrangement to enable store closures along with rent reductions but fast fashion brand Select, which is currently trading under a CVA, said it has no intention of reducing its store estate but it is seeking rent cuts.

House of Fraser has almost 60 stores in the UK, all of which will occupy large retail units, which could prove difficult for landlords to relet without carving them into smaller, more manageable properties. But this would not be the only stumbling block for House of Fraser to execute such a policy.

At present its ownership structure is not clear and the business is heavily indebted. Majority shareholder, Chinese group Sanpower, had indicated recently that it intended to sell a 51% stake in House of Fraser to Wuji Wenhua, a Chinese tourism group, but so far no further news has emerged on this story. Sanpower, however, is reported to have injected £30m into the business in recent weeks to enable it to continue to pay landlords and concessionaires.

Retail tycoon and owner of Sports Direct, Mike Ashley, also holds a 10% stake in House of Fraser and is said to be keen to see it merged with rival department store Debenhams, in which he owns a larger stake. Debenhams is facing its own problems having yesterday revealed that its interim profits and sunk by almost 52% and by close to 85% on a reported basis.

Debenhams said it had been hit by poor Christmas trading and extreme weather, which will be mirrored at House of Fraser. House of Fraser previously reported that store sales were down -2.9% in the six weeks to 23 December and digital sales were also down -7.5%.