What’s market in CVAs?

Insolvency Bitesize - October 2020

CVAs continue to be a key tool for retailers and businesses with a large real estate footprint and the Covid-19 crisis has seen an acceleration in inquiries about their suitability. The BPF recently suggested that, based on its findings, 2020 has already topped 2019 in their use and Q4 is likely to see even more companies resort to CVAs.

The commercial terms in any CVA will, of course, vary but we’ve looked across a large number of proposals in recent months and have identified what’s market across a range of issues. We’ve set this out in the table below.

 

Proposed duration

2-4 yrs

But earlier exit possible - e.g. Homebase successfully exited 18 months early

No. of lease categories

4+ depending on range of performance between stores

Note - Debenhams confirms you cannot compromise forfeiture rights

Amount of future rent reduction

Typically 25%-50%

Some leases will be unaffected - although may still move to monthly and/or turnover rent

Affected leases may see much higher reductions and a rent free period

Can write down areas

Compromised lease fund

Fund available for certain categories of affected creditors if CVA succeeds

Not always used

Amount varies

e.g. Arcadia had £7m fund + £629k for Cat D leases; Restaurant Group £900k; All Saints nil

Share in trading uplift?

Not common

May be linked to excess EBITDA, with cap

Covid-19 clause?

Too early to tell if this will become common

Pizza Express CVA currently an outlier

NPV discount 5% - prescribed by Insolvency Act
Rule 15.31 - discount applied to claim

Long-term market approach has been to discount claims by 75% - but recent CVAs have been more flexible with lower discounts/greater uplifts

Pizza Express had a 25% discount, Poundstretcher had a 50% discount, All Saints had a mixed discount

CVA compromise survives termination? Varies
Rent level at end of CVA for rent compromised leases?

Usually the higher of market rent or varying % of contractual + turnover rent

New Look move to put some leases permanently on turnover rent basis

Compromise of business rates?

Still common

e.g. Poundstretcher, Arcadia and Debenhams CVAs