Paperchase opts for CVA to avoid folding up

Stationery specialist Paperchase is the latest high street retailer to announce financial difficulties, bringing in KPMG to assist with a proposed company voluntary arrangement (CVA) which would include rent reductions at many of its stores and the possible closure of some outlets

The company, which was founded more than 50 years ago by two art students, was bought by private equity firm Primary Capital in 2010 for £20.4m. It operates 145 stores across the UK and employs 1,750 people. The business made a £6.3m pre-tax loss last year, having posted a £613,000 profit in 2017.

The CVA proposal divides the company’s sites into six categories. Under the plans, 45 category 1 sites will largely remain unchanged, whilst turnover rents are being proposed at 70 sites within category 2, 3 and 4, with a varying guaranteed minimum base rents, ranging from 35% to 80%.

A total of 28 category 5 and 6 sites will experience a 50% rent reduction for three months, following which there will be either a rent-free period or a closure and exit.

Three stores, located in Jersey, Guernsey and Covent Garden in London are not included in the proposal.

The proposed supervisors of the CVA are Will Wright and David Costley-Wood from KPMG’s restructuring practice.

Will Wright, restructuring partner at KPMG, said: ‘Over the last fifty years, Paperchase has grown to become one of the UK’s most well-known and innovative design-led stationery retailers.

‘However, like many other businesses in the retail sector, the company has been adversely affected by a cocktail of well-documented issues, including a reduction in footfall, increased rents and business rates, and margin pressure from sterling depreciation.’

The decision to look for a CVA follows a detailed strategic review of the business undertaken by the company’s directors, during which a series of consultations with key stakeholders took place at which soundings were taken on whether they would be supportive in principle of the company proposing a CVA.

Wright said: ‘We believe that what has been put forward today reflects the feedback received during this process, and specifically, gives the company the ability to rationalise its store portfolio by exiting stores that are unprofitable, secure rent reductions where stores are over-rented and implement turnover rents to reflect the highly seasonal nature of the business.

‘As part of the review, the directors have also been successful in negotiating a financial restructuring with the company’s lenders, which will enable new investment to come into the business. Such additional investment and the completion of the wider restructuring is however conditional on the approval of the CVA proposal and successfully concluding the subsequent challenge period.’

Paperchase needs to secure at least 75% creditor approval for the CVA for it to proceed. The creditors will vote on the CVA on 22 March. 

Report by Pat Sweet

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