Poundland to tap emergency overdraft after Christmas trading slump

Struggling discount chain Poundland is preparing to call on millions of pounds in emergency financing to combat a worrying slump in trading.The retailer will soon begin drawing down on a £30m overdraft granted by its previous owners, Pepco.The Polish company agreed to provide the capital in a last-ditch deal to offload the business to new investors.The chain was rescued in the summer by distressed investment specialist Gordon Brothers as part of a court-sanctioned restructuring plan that paved the way for it to close scores of loss-making stores.It reported that the Boston-based investment firm acquired Poundland for £1, a deal that protected most of the 16,000 staff employed across 825 UK stores.Under the terms of the agreement, Pepco agreed to provide its former subsidiary with substantial funds, including an immediate £30m loan and a separate £30m debt tranche in the form of an overdraft.Gordon Brothers subsequently shut two of Poundland’s warehouses and 68 of its worst-performing stores in a push to boost the retailer’s profitability, putting more than 2,000 jobs at risk.However, Poundland’s struggles have intensified amid a broader slump in festive sales across the sector.New figures from Sensormatic show that store visits across the UK high street were down 13pc year-on-year on Dec 23, typically one of the busiest shopping days of the year.Retailers are also now anticipating a further drop in sales in January, according to a survey from the Confederation of British Industry, which revealed bosses’ expectations are at their weakest level since March 2021.Gordon Brothers informed Pepco of its wish to draw down on the credit facility in recent weeks as trading fell short of forecasts, creating a liquidity crunch.Poundland plans to access the emergency funding in two stages, drawing down its first instalment in January before reaccessing it later this year.Pepco is understood to have initially resisted the request, raising fresh concerns about Poundland’s survival prospects.However, an agreement was reached at a board meeting, alleviating concerns about its immediate future.A phalanx of advisers has overseen the proposals. Gordon Brothers drafted in a team of forensic accountants from AlixPartners to carefully monitor Poundland’s cash flow shortly after taking over in July.Poundland’s board has enlisted its own specialist corporate financiers from FRP Advisory to observe performance.The budget chain is on track to close around 130 stores by next February under the restructuring plan implemented by Gordon Brothers.In stores earmarked for closure, clearance sales have been launched across a wide range of stock, with reductions of up to 40pc.Earlier this week, Poundland announced it will not open on Christmas Day, Boxing Day or New Year’s Day, continuing an established practice of prioritising staff wellbeing over sales.A spokesman for Poundland said: “The restructuring plan has unlocked the financial support we needed, giving us more than enough headroom to implement our recovery plans. We continue to receive the full support of Gordon Brothers and our former owner, Pepco.”“Our stores are in the best shape they’ve been in for some time – well stocked, strongly merchandised and serving customers.”“While, of course, there remains much to do, we are pleased with progress in the last few months, as we get the business back on track.”Pepco declined to comment.