Debenhams has agreed a £40 million financial lifeline after it agreed a strategy with lenders to turn around its ailing department store business.

The retailer said the facility agreement would “act as a bridge to facilitate a broader refinancing and recapitalisation” as the company battles to shore up its finances following a pre-tax loss of nearly £500m last year and three profit warnings.

The new facility agreement contains provisions for a step-up in pricing during the second quarter.

The company said it had also penned an agreement to partner with supply chain company Li & Fung for a new strategic sourcing partnership, with orders expected to comment shortly.

Earlier this month it was reported that Debenhams was weighing up the prospect of a Company Voluntary Arrangement (CVA) with creditors and landlords, in a move which would accelerate the planned closure of 20 stores as part of its restructuring plans.

It came amid reports that the company has reached the limit of its £520 million borrowing facilities.

The company currently has 165 stores and employs 25,000 people.

Sales for the Christmas period were sluggish, with gross transactions down 3.8 per cent and like-for-like sales down 3.4 per cent on the six weeks to January as the company weathered the shift to online shopping.

In a statement chief executive Sergio Bucher said the new 12-month credit facility was a “first step in our refinancing process”.

He added: “The support of our lenders for our turnaround plan is important to underpin a comprehensive solution that will take account of the interests of all stakeholders, and deliver a sustainable and profitable future for Debenhams.”

Debenhams said it would continue to discuss a comprehensive refinancing for the coming year with its lenders.

Commenting on the Li &Fung partnership, Bucher said: “the partnership agreement…will be a key part of our turnaround plan. It gives us access to state-of-the-art technology in the LF Digital platform, providing end-to-end visibility across our supply chain.”

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