British retailer Matalan has asked existing lenders Barclays and Lloyds to inject £50m of government-backed funding to maintain liquidity.
The banks agreed to lend money as part of the coronavirus business interruption loan scheme. This loan came with the condition that the retailer repay immediately were it to default.
In April, Matalan released a statement to bondholders saying that it had never before faced “such difficult and unpredictable times”. It also said that it was “exploring options” in regards to funding, which included seeking £60m.
What went wrong for the retailer?
When the Covid-19 coronavirus lockdown came into place, Matalan was forced to shut 232 stores and furlough over 11,000 workers. The company also fully drew its revolving-credit facility for the first time and deferred rent payments.
Matalan employed advisors from service network Deloitte to raise emergency funds, however, Retail Gazette reported that “investors were reluctant” due to Matalan CEO John Hargreaves refusing to invest his own money.
According to The Times, sources have said that Hargreaves is not willing to use personal funds allegedly worth £600m to help the business. In 2010, Hargreaves had paid himself a £250m dividend. Last year, he won an £84m tax appeal against HMRC.
What does the future hold for Matalan?
Matalan, along with many other retailers, blames the Covid-19 coronavirus lockdown for the recent sharp decline in sales and profit. Yesterday, however, UK Prime Minister Boris Johnson announced that some shops may be able to reopen in June, depending on the rate of Covid-19 infections.
Johnson said that next month: “We believe we may be in a position to begin the phased reopening of shops and to get primary pupils back into schools, in stages, beginning with reception, year one and year six.”
However, retailers should not expect the industry to return to normal following the eased-lockdown, as it’s likely that many consumers will remain in isolation until safety is ensured. Matalan among other retailers, should it choose to reopen, will also have to consider operating at reduced hours and with restricted visitor numbers to not cause a second-spike of Covid-19 infections.