Dividends possible after Debenhams rejigs debt

Debenhams moved a step closer to resuming the payment of dividends to its shareholders today, with a £650 million refinancing that will cut its interest payments.

The department store's borrowing facilities were due to be repaid next May.

That it has managed to rearrange the debt almost a year ahead of time is seen by analysts as a sign that the company is through the worst of the recession and has reasonable cause for optimism about the future.

The new arrangement comprises a £250 million loan and a £400 million revolving credit facility — an overdraft in effect — that expires in October 2013.

The rate of interest on the debt will be 4.5% this year, down from 7% on the old loan. It has cost Debenhams £10 million in fees to arrange, an amount that will be shared among 12 banks that agreed to participate in the deal.

Debenhams has managed to slash its debt from a worrisome £1 billion pile a few years ago.

Oriel Securities analyst Eithne O'Leary said: "This should remove financing worries from the agenda and — more importantly — clear the way for the recommencement of dividend payments from the interim stage in 2011."

Finance director Chris Woodhouse said: "The new facility puts Debenhams on a strong footing for the future."

Debenhams shares gained 0.2p to 58.5p.