Billionaire Mr Philip Green, the former owner of fast-fashion chain Topshop, is running out of assets to sell to fill the $700 million shortfall at his Arcadia Group retail empire. Arcadia, a UK retail stalwart which also included Top Man, Miss Selfridge and Burton stores, went bankrupty in November with debts of more than 1 billion dollars.
The difference between what Arcadia owes and what its bankruptcy trustees were able to raise could yet plunge the mogul into a second public pension payout; the first was a $461 million settlement after its BHS department store chain collapsed in 2016.
A week ago, administrators at Deloitte, who are overseeing Arcadia’s bankruptcy process, confirmed the sale of the group’s distribution center, for an undisclosed amount, to Prologis, a San Francisco-based real estate trust. . However, despite administrators confirming that more than $820 million has now been raised for Arcadia’s direct creditors, only $260 million has been sent to fill the $700 million hole in Arcadia’s pension fund. group, a spokesperson said. Forbes. Why only $260 million? That’s all that was planned in 2019when Green entered into an agreement with the pension trustees to put certain assets as collateral in the event of a pension shortfall.
For the remainder of the shortfall – a sum of $440 million – the Arcadia pension is an unsecured creditor and will therefore have to wait in line with the rest of those to whom Arcadia owes money, until the end of the process. of insolvency. According to an insolvency expert, this shortfall is expected to amount to hundreds of millions of pounds.
fill the holes
Prior to last Friday’s deal, the administrators had raised $680 million, mostly from three previous sales of Arcadia assets: the sale of its most famous brands Topshop, Top Man, Miss Selfridge and HIIT to rival retailer ASOS in February; the sale of the Dorothy Perkins, Burton and Wallis brands to competing retailer Boohoo, also in February; and the sale of Evans to City Chic in December 2020. After Friday’s announcement, that figure had risen to $820 million.
But with total debt of $1.1 billion and $820 million in asset sales, there’s about $280 million left to find. This means that if Green cannot extract more money from what is left of his empire, he may face pressure to dip into his personal fortune to cover losses.
However, the process of holding Green to account for the shortfall is likely to take place in the public and political realm, according to James Pow, retail adviser at London-based business consultancy Quantuma. “I think the problem is going to be that there is nothing the courts or the government can do to push Sir Philip Green’s hand other than disgrace [him] in the press,” Pow said. Forbesadding that the recent sale of Arcadia office furniture and “cocktail cabinets” is a sign that the end of the process is near.
Pow said Forbes that approximately 1,000 of Arcadia’s commercial vendors “should receive less than 1% of the money owed to them”. One of the unexpected results of the bankruptcy sees the Green family’s BVI-based family office Aldsworth Equity receive an ‘unpleasant’ $68m payment ahead of others against cash due on an interest-free loan that Aldsworth granted to Arcadia in 2019 during the time of emergency restructuring, Pow says. On the likelihood that Green will dip into his own pocket to plug those holes, Pow remains “highly doubtful” that “more funds are forthcoming.” Pension trustees, he says, will also have to line up behind HMRC’s $60million claim from the trustees, pushing the pension pot further to the back of the queue.
Deloitte would not say whether that $68 million payment will be in cash and therefore considered part of Philip and Cristina Green’s personal net worth, or if it will be diverted to pension and creditors.
A flagship asset, but little value
But the end of asset disposals is most certainly near. Following the sale of the distribution center on Friday, April 9, the administrators confirmed Forbes that the last set of significant assets Arcadia has left for sale are a number of properties, the most valuable of which is Topshop’s iconic flagship store on Oxford Street. The sale of Arcadia’s crown jewel is handled by KPMG. Although this is a hugely valuable property in the heart of London’s shopping district, its net worth to administrators is yet to be confirmed. In December 2019, Arcadia entered into a $400 million agreement with Apollo Global Management to remortgage the property, repayable over a four-year period.
However, just five months after taking out this mortgage, Arcadia, like the rest of the UK, locked down and closed its stores across the country due to the pandemic. Thanks to the interest that this loan has increased, Arcadia now owes $439 million, according to a source with knowledge of the 2019 mortgage. And Apollon, Forbes learned, is the first ranking secured creditor and will have to be repaid in full before the pension creditor receives any return.
KPMG told Forbes it does not provide guidance on the property’s estimated value and cannot predict the estimated outcome for creditors. What we do know is that West End retail values have fallen, according to valuation experts Frank Knight, by 17.2% in 2020, with so many shops closed and shoppers increasingly turning to Internet. Experts in real estate appraisal solicited by Forbes could not agree on a consistent and credible value for 214 Oxford Street, with estimates differing by the hundreds of millions. In short, Green’s Arcadia Group doesn’t seem likely to make much from this latest asset sale. Although the mortgage is likely to be paid off, the decline in its value during the pandemic does not bode well for closing the pension deficit.
Still a billionaire?
A pension deficit in the hundreds of millions is likely to incur the ire of any incumbent government – and that process is starting slowly. UK Lord Chancellor Robert Buckland has confirmed Forbes earlier this month the question was passed to the Department for Work and Pensions, who are expected to respond shortly.
The issue of Philip Green and pension deficits was fueled by former politician Frank Field, who wrote to Buckland in February, in a letter seen by Forbesasking for Green to be “presented with [a] bills for the damage he caused by sinking the Arcadia Group into the ground.
Despite the demise of his retail empire, Green’s billionaire status is assured, largely thanks to the company’s $2.1bn (£1.2bn) dividend payment to Cristina Green, Philip’s wife, in 2005.
Today Sir Philip and Cristina Green are ranked 1299th Forbes’ latest list of the world’s billionaires, with an estimated net worth of $2.4 billion, down from a peak of $5.9 billion in 2016. The Greens are among the few British billionaires whose net worth has fallen between 2020 and 2021.