CR-2025-004514 - [2025] EWHC 2755 (Ch)

To assist with post-COVID funding requirements and the diversification programme Pepco had, between May 2021 and February 2022, made a series of unsecured loans to Poundland, repayable between September 2025 and May 2026 (“the Unsecured Loans”). The advances totalled some £237 million. But then came a sharp decline in profits. The EBITDA for FY22 had been a positive £87 million: but for FY24 it was only £25 million (leading to a total comprehensive loss of £94.875 million). For FY25 EBITDA is projected to be a negative £117 million. In the Spring of 2024 Pepco ran a limited M&A process following an approach from a trade purchaser. Only two interested parties emerged, but neither proceeded because of the sharply declining profitability of the business. This sale process ended in November 2024.

As continuing owner of the Poundland business Pepco immediately began a strategic review of the business against a background of a poorly performing Christmas quarter. Part of this included a review of the leasehold estate undertaken by CBRE. This made clear that a significant part of the leasehold portfolio was over-rented. Poundland entered into negotiation with some of its landlords in an attempt to achieve a consensual reconfiguration of the leasehold portfolio through amendment, surrender or assignment. Where this was successful the resulting leases are excluded from the present plan. But in many cases the negotiations did not succeed. The vast size of the portfolio and the number of landlords, and the constraints imposed by the need not to scare the market, meant that this process could not achieve a leasehold restructuring within the timeframe dictated by cash flow pressures. In the light of that in March 2025 Pepco and Poundland instructed Teneo Financial Advisory Limited (“Teneo”) to formulate a leasehold restructuring plan to enable the survival of the business.

As continuing owner Pepco also made further injections of liquidity (but for which Poundland would have become insolvent), but it was only prepared to do so on a short-term basis. After facilitating some very short-term arrangements, in March 2025 Pepco entered into a Secured Term Loan Agreement (“the Secured Loan”) providing for committed facilities of £30 million and an uncommitted facility of £10 million repayable on 6 July 2025 and at an interest rate of 6.5%. The “Dealz” brand was disposed of to another group company for full consideration determined by independent valuation. What was required was a financial restructuring of the remaining business alongside the leasehold restructuring plan, and Teneo was instructed in that regard as well.

Having made these preparations on 7 April 2025 Pepco launched a competitive sales process for Poundland. It proceeded by way of an information memorandum which contained management forecasts based on a proposed turnaround plan involving a leasehold restructuring. This launch itself imposed further funding pressures on Poundland because of the withdrawal of trade credit insurance and demands for shorter payment terms from suppliers. The announcement of the process also limited the degree to which information could be shared with landlords and others if stock market listing rules were not to be breached. A broad range of 29 potential bidders was canvassed (together with 9 debt funds and asset-backed lenders who might assist potential purchasers to fund a transaction). This resulted in seven indicative non-binding offers. Each of these indicative offers attributed no value to the equity in Poundland, proceeded on the footing that the sale would be followed by a leasehold restructuring, and offered to inject around £50 million of post-transaction funding. What the continuing sales process explored was whether any potential purchaser was willing to increase the amount of post-transaction funding. Negotiations continued with four interested parties, all of whom maintained the structure of their bids, but increased their offers of post-transaction financing to about £72.5 million.

After further negotiation the successful bidder proved to be Peach Bidco (“Peach”) (a special purpose vehicle of Gordon Brothers Holdings LLC) and associated Gordon Brothers entities (which for simplicity I will refer to together as “Peach”). The essential structure of the deal was:-

That no value was attributed to the equity in Poundland;

That Pepco would extend the full Secured Loan until 1 September 2025 and subordinate it to funding provided by Peach;