Paperchase sale on the cards amid crunch landlord talks

(c) Sky News 2019: <a href="http://news.sky.com/story/paperchase-sale-on-the-cards-amid-crunch-landlord-talks-11616569">Paperchase sale on the cards amid crunch landlord talks</a>
 

The high street stationer and greeting cards chain Paperchase is being touted to potential buyers as its owner holds talks with landlords about a move to close a chunk of its store portfolio.

Sky News has learnt that KPMG, which is advising the company, began contacting prospective bidders this week about a deal which could see it change hands for the first time in nearly a decade.

Sources said the decision to explore a sale would include examining a pre-pack administration, an insolvency process which involves shedding liabilities before a company is taken on by new owners.

By putting the business on the market, Paperchase joins French Connection (LSE: FCCN.L - news) , HMV - which is in administration - and Sofa.com among the prominent UK-based retailers which are currently up for sale.

A meeting was held in London on Thursday ‎at which KPMG discussed the principle of a Company Voluntary Arrangement (CVA) - a form of insolvency mechanism - with a number of Paperchase's landlords.

The British Property Federation, which represents commercial landlords, is understood to have attended the talks.

Sources said that KPMG was attempting to adopt a more consensual approach to a CVA in an effort to assuage a property industry angered last year by retailers such as House of Fraser, the department store chain.

CVAs can be contentious because if approved they impose steep financial haircuts on creditors, including landlords, by paving the way for ‎store closures and rent cuts at remaining sites.

In the past year, Carpetright (Other OTC: CGHXF - news) , Mothercare (Other OTC: MHCRF - news) , New Look and the restaurant chains Byron and Prezzo are among the high street names to have had CVAs authorised.

One insider said that if there was insufficient interest in a CVA, Paperchase would press ahead with an attempt to find new backers.

"Essentially they're trying to reverse-engineer the CVA process by gauging landlords' appetite for it before putting a formal proposal to them," the insider said.

The possibility of a CVA was reported by the Telegraph earlier this month.

Paperchase has been owned by Primary Capital (Other OTC: PMCPF - news) , a private equity firm which has previously backed companies such as Yo! Sushi, since 2011.

Primary has tried to sell or float the company in recent years but has been left holding the keys in an increasingly perilous retail environment.

The chain trades from 145 of its own stores in the UK, as well as 75 department store concessions in the UK, Europe and North America.

KPMG is understood to have informed potential bidders that new investment is required in Paperchase in order to facilitate changes to its business model, the closure of loss-making stores and a shift to a variable rental arrangement.

‎It was unclear on Thursday how many of Paperchase's stores were vulnerable to closure under any CVA proposal.

The chain remains profitable, although it made just £0.1m in profit before interest and tax in its last financial year, according to sources.

‎Primary could not be reached for comment on Thursday, while KPMG declined to comment on the talks with landlords.