How angry landlords could thwart House of Fraser's rescue plan

House of Fraser is in trouble. Sales are falling, losses are mounting, something had to give.

This morning the company admitted that the business is insolvent in its current form. House of Fraser has filed a Company Voluntary Arrangement (CVA) - a rescue plan of sorts - which they are asking unsecured creditors to support.

The CVA proposes that House of Fraser closes just over half of its department stores - 31 of 59 will shut with the loss of 6,000 jobs.

From Wolverhampton to Hull, Birmingham to Epsom, Cardiff to Edinburgh, the UK’s high streets are about to experience another tremor.

It’s notable that the company is even closing its flagship department store on Oxford St. “Prime” retail space isn’t what it was. In the age of digital shopping, assets have become liabilities.

House of Fraser made a loss of £44 million last year, sales fell from £840m to £787m. The company says the cost of its store estate has become “unsustainable” and now presents an “existential threat to the business”.

Waiting in the wings is another Chinese investor. C.banner, which owns Hamleys, is promising £70 million for a controlling stake in the retailer but it wants landlords to agree to accept the CVA proposal - and some pretty hefty losses - first.

Landlords will formally vote on the CVA on June 22nd. House of Fraser needs 75% of them to support the rescue plan. It’s not clear 75% will.

CVAs have been used widely this year, by a series of retailers in distress. The landlords of Mothercare, Carpetright, New Look, Select Fashion have all agreed to take a hit to give the businesses a chance of survival. But there are signs that patience is wearing thin.

The British Property Federation (BPF), which represents landlords, has this morning called for the government to investigate whether retailers are abusing the CVA process. The BPF doesn’t specifically accuse House of Fraser of doing so, but the timing invites you to think it is.

I have spoken to several of House of Fraser’s landlords. Some of them, whose stores are being shut, are facing many millions of pounds of losses. They are angry and rebellious.

“This is a cynical, exploitative move,” one landlord told me. “It penalises some landlords more than others and it protects bond holders, banks and shareholders' equity. I’d rather take my chances in administration”.

A bluff? Perhaps. But not so long ago House of Fraser was busy flogging its department stores on “sale and leaseback” deals to the same landlords it now wants to suck up heavy losses. There’s a lot of resentment out there.

Would some landlords be better off in administration? It’s hard to see how. House of Fraser owes £390 million to its banks and bond holders - as secured creditors they’d be first in the queue for repayment.

A company insider tells me the liquidation of all the company’s assets probably wouldn’t raise £390m. "In administration, everyone loses everything. The CVA is unfair on landlords, I get that, but it's ethically right for them to back it. The CVA protects suppliers and the majority of staff. It’s CVA or bust."

Even if landlords back the CVA proposal, there’s is no guarantee House of Fraser will survive. History tells us that most CVA’s end in failure, delaying rather than avoiding a company’s eventual demise.