Oddbins on the brink as CVA details emerge

Creditors have less than two weeks to decide whether to back plans to rescue Oddbins through a Company Voluntary Arrangement (CVA) or see it become the second major high street drinks retail failure in a couple of years following the collapse of First Quench in 2008.

A creditors’ meeting has been called by Deloitte for 31 March in London. If a majority of creditors fail to accept the rescue plan at that meeting Oddbins will be placed in administration.

On projections produced by the Oddbins board, creditors are forecast to get just 21 pence in the pound in payments staggered over 46 months. However, if the CVA is rejected, unsecured creditors (largely suppliers) are likely to get just 13p in the pound.

The question is thus whether recouping 13% of outstanding debts now looks safer than the possibility of an extra 8% (eroded by inflation) over four years. Initial reactions from suppliers suggest that, reluctantly, they will grab the 13p in the pound. Few will have the opportunity to reclaim supplies through “retention of stock” clauses in sales contracts as much of it was sold in the pre-Christmas trading period. Several saw the writing on the wall and have not supplied Oddbins since the turn of the year.

Until all claims are submitted, it is impossible to put a figure on Oddbins’ total debts, but initial estimates put the figure at more than £20 million.

The Oddbins directors calculate that once the company is shrunk to its “profitable” core, it will generate operating earnings of £11.3m in the 46 months, of which £4.7m would be paid into the CVA fund. If Oddbins wins its court case against Nicolas UK, up to a further £3.2m might be available to distribute among creditors.

Initial trade reaction to the CVA plan has been mixed. Suppliers are keen to maintain a diversity of national outlets in the off-trade rather than see a further polarisation into the supermarkets on the one hand, with Majestic and a clutch of niche retailers on the other. But they are sceptical of Oddbins projections, especially as the company has been loss-making since it was taken over from Castel in 2008.

One supplier, who wished to remain anonymous, suggested that orders would not be met without advance payment plus a price premium to help recoup some losses above 21p in the pound. That would put Oddbins at a retail price disadvantage even if it could manage its cash flow to fund such an arrangement.

Another suggested that losing low-margin turnover would be preferable to risking further losses by backing projections that required a leap of faith to rely on them.

The company is also asking its landlords to take a 30% cut in existing rents to help it trade out of difficulties. That may be less unattractive than it seems. High streets are littered with empty units and the prospects for finding new tenants are limited. At least 70% of rents would cover most landlords’ costs.

Deloitte says that although there have been some negotiations about possible sales of parts of Oddbins, they have not proved fruitful, although they have not been terminated. Sceptics wonder what assets could be on offer other than the trading name, itself partially devalued by the plight of the company.

The list of unsecured creditors will be disparate, ranging from trade suppliers and landlords to local councils and utility groups, all with varying attitudes to a further rescue of Oddbins. The outcome of the vote on 31 March is unpredictable and thus the company’s prospects of survival are on a knife-edge.

Finance on Friday, 18.03.2011