(Update includes bullets, share price move, analysts' comments and context)
--Debenhams shares have skyrocketed after the company secured a 12-month loan worth GBP40 million.
--The department-store chain has also agreed to enter a strategic sourcing partnership with supply-chain manager Li & Fung.
By Oliver Griffin
Shares in Debenhams PLC soared Tuesday after the company said that it secured an additional 12-month loan worth 40 million pounds ($51.6 million) and that it has agreed to form a strategic sourcing partnership with Li & Fung Ltd. (0494.HK).
The U.K. department-store chain announced in January that it was in talks with lenders to refinance its existing bank loans after it warned margins in the first half of fiscal 2019 will show erosion due to promotional activity.
At the same time, Debenhams said like-for-like sales in the six weeks ended Jan. 5 fell 3.4%, while group gross transactional value--a key metric for retailers that shows the amount of money going through the tills--fell 3.8% in the same period.
The new loan contains provisions for a step-up in pricing in the second quarter of the calendar year, Debenhams said. The loan will act as a bridge to ease broader refinancing and recapitalization.
David Madden, a market analyst at CMC Markets UK, said the new loan will act as a lifeline in the medium term.
"The access to funds will give the group some much-needed breathing space," Mr. Madden said, adding Debenhams needs to undergo major restructuring if it is to survive in the long term.
Further updates will be made in due course, Debenhams said.
The company said it has in principle entered an agreement with supply-chain manager Li & Fung to develop a strategic sourcing partnership that will cover its own-brand sourcing.
Tony Shiret of Whitman Howard described the tie-up with Li & Fung as potentially significant.
"[The deal] may be seen as confirmation by a very serious global sourcing operator that it doesn't regard Debenhams as a write-off," Mr. Shiret said.
The partnership will deliver improved product quality and lead times, as well as higher margins, Debenhams said.
Initial orders under the agreement are expected to begin shortly.
Debenhams shares at 1027 GMT were up 39%, or 1.20 pence, at 4.34 pence each.
Write to Oliver Griffin at email@example.com; @OliGGriffin