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Selfridges Seeks Extension To £1.8B Property Debt Pile, Prepares Extra Cash To Avoid Breaches

Owners of Selfridges have sought an extension to some of the £1.8B of debt secured against the company’s real estate maturing next year, preparing to put up more cash to make sure interest payments on its loans are made. 

The future ownership of the world-famous department store chain was thrown into doubt when the chief executive of one of its co-owners, Austrian Signa Holdings, was ousted from the company as Signa seeks to restructure its debt pile. 

Founder Rene Benko stepped down from Signa over the weekend after pressure from creditors and fellow shareholders to hand control of the €23B (£20B) company to a restructuring expert. Signa needs to sell assets to pay down debt, leading to reports that its 50% stake in Selfridges could be put on the market.

Selfridges on Oxford Street has a £1.7B loan secured against it.

Signa bought Selfridges in a 50-50 joint venture with Thai department store giant Central Group for about £4B in December 2021. Central is seen as a likely buyer of the other half, The Sunday Times reported.

The deal saw the duo buy 18 department stores from the Canadian Weston family, including Selfridges in London, Manchester and Birmingham; De Bijenkorf in the Netherlands; Brown Thomas and Arnotts in Ireland; and associated e-commerce platforms and their properties in London, Manchester and five locations in Ireland.

Selfridges on Oxford Street is one of the world's most famous department stores and is the second-largest store in the UK after Harrods. The company was founded in 1908 by Harry Gordon Selfridge, who was played by American actor Jeremy Piven in a 2013 TV series. 

In August 2022, the chain's new owners took out two loans secured against two UK properties where Selfidges owns the freehold, documents filed at Companies House show. The loans include a £1.7B debt facility secured against the famous 580K SF flagship Oxford Street department store, provided by Bangkok Bank, and a £120M loan secured against the 145K SF store it owns at Exchange Square in Manchester, provided by Swiss bank EFG. 

Its UK property assets were valued at £2.5B at the end of 2022, according to accounts a subsidiary of Selfridges filed in September. Accounts for the group of special-purpose vehicles that own the UK property indicate that the two loans mature in 2024. The Manchester loan matures in February. A month was not specified for the Oxford Street loan.

An extension has been sought on the Manchester loan, with the lender indicating it would extend the loan to August 2025, the accounts say. Whether an extension has been sought on the Oxford Street loan was not mentioned.

Selfridges, Signa and Central did not respond to requests for comment. 

Selfridges at Exchange Square in Manchester

The accounts highlight how the sharp rise in interest rates over the past year has impacted Selfridges in terms of increased debt repayments, with the owners likely needing to put up more cash to meet interest payments.  

“For the external loan held by London Oxford Street Invest Limited under the base case scenario, which assumes SONIA [interest rates] continues at current high levels, funding will be required to service the interest in respect of this facility and to ensure compliance with external banking covenants including a cure of any breach,” the accounts say. “The ultimate controlling parties have provided a legally binding guarantee on the future interest payments and principal repayment in respect of this facility.”

The margin of the facility is 3.5% on top of base rates, which have risen from 1.75% to 5.25% since August last year. 

External funding will also be needed to meet interest payments on the Manchester property, according to the accounts.

“Under a severe but plausible downside scenario, which assumes a fall in the value of the investment property, additional funding will be required to cure any breach in the covenant attached to the debt facility,” the accounts say.

The UK business is structured as an operating company and a property company, with the operating company paying the property company rent on a lease that expires in 2048. 

The consolidated European stores of Signa and Central’s joint venture reported a £125M loss in 2022 and revenues of £805M. 

Signa co-owns the famous Chrysler Building in New York City with RFR Realty, as well as European department store chain KaDeWe and a fleet of development projects across Germany. 

It is in the development business that distress first manifested itself, as large developments like the €1B Elbtower in Hamburg stalled this year. Bonds issued by the company’s development unit are trading at a discount to their face value of about 60%, and bondholders have appointed advisers to work on a restructuring.