News Column

Punch Taverns Now Has Backing Of Majority For Debt Deal

June 26, 2014

Steve McGrath



LONDON (Alliance News) - Debt-burdened pubs operator Punch Taverns PLC Thursday said it has now agreed debt restructuring proposals with a majority of the stakeholders, a deal which, if implemented, would hugely dilute the equity held by its current shareholders.


The company saw its shares plummet in late May after it said it had received a debt restructuring proposal from a group of its creditors which would reduce the group's total net debt by around GBP0.6 billion but significantly dilute existing shareholders' equity in the company.


The proposals would see junior notes in Punch A and Punch B exchanged for cash, new junior notes, and new ordinary shares in a debt-for-equity swap. A group of junior creditors also would subscribe for ordinary shares in the company at a significant discount to the current market price in order to raise additional funds which would be used to repay junior notes in the Punch A securitisation.


However, the proposals would also dilute the current shares in the company to 15% of its proposed new share capital.


In its statement Thursday, it said it now has agreement over the proposals with stakeholders who own or control about 59% of the notes across Punch A and B, about 54% of the senior notes across both classes, about 62% of the junior notes across both classes, and about 54% of its share capital.


"The board has carefully considered, with its advisers, the proposals and the resulting significant equity dilution. It believes that it has considered all feasible alternatives to the proposals and it has sought to minimise the level of equity dilution for shareholders. Given the broad level of stakeholder support for the proposals, the absence of sufficient support for alternatives and the prospect of near-term default in the securitisations absent a restructuring, the board believes that the proposals are in the interests of shareholders as a whole and has therefore initiated the process to finalise and implement the proposals as soon as appropriate," it said in the statement.


However, it also cautioned that there's still a risk that it can't successfully implement the proposals because they need the support of other investors outside the stakeholder group who are backing the deal.


Those supporting the deal include Alchemy Special Opportunities LLP, Avenue Europe International Management LP, Angelo, Gordon & Co LP, Glenview Capital Management LLC, Luxor Capital Group LP, Oaktree Capital Management LP, Seer Capital Management LP and Warwick Capital Partners LLP, the company said.


Talks over the debt restructuring have been dragging on, with different classes of Punch creditors disagreeing on various proposals to restructure the debt because any proposal will bring disadvantages to one class or another. However, the company and the creditors need a deal as Punch risks breaching covenants on the debt and defaulting.


Punch Taverns has several times warned its bond holders and other creditors that they stand to lose more of their investments if the sides can't reach a consensual deal to restructure the pub operator's debt.


The Punch A and Punch B notes are currently benefiting from covenant waivers which were approved by noteholders on May 13 and which will expire on August 4 if a debt restructuring isn't agreed by July 3. Punch said it doesn't think it will be able to launch the proposals before this deadline, and so it has called a noteholder meeting on July 18 to get a waiver extension so it doesn't default on the securitisations whilst the proposals are being finalised and implemented.


The proposals, if implemented, would mean the company's pro-forma net debt to Ebitda leverage will fall to about 7.6 times. Its gross securitisation debt of GBP1.56 bmillion would have an initial effective interest rate of about 7.9%, including PIK interest.


"These proposals have a high level of support, which reflects the hard work of a large number of stakeholders. There are still hurdles to be overcome before reaching complete agreement but we view the current situation as very positive and that a successful restructuring can be implemented. Continued constructive dialogue and determination from all involved will be required to achieve this," Punch Chairman Stephen Billingham said in the statement.


The company ran up a debt pile of several billion pounds through an expansion spree, but was then hit hard when the financial crisis and ensuing economic downturn weighed on its trading.


Its Punch A securitisation is GBP1.42 billion of gross debt secured against 2,272 pubs and the Punch B securitisation is GBP861 million of gross debt secured against 1,619 pubs.


It has been selling off hundreds of pubs to help bring down its debt and shore up its balance sheet. It realised GBP51 million of net proceeds from the sale of 140 pubs and other assets in the first half of its financial year which ended March 1.


Punch also said Thursday that it is on track to meet its full-year profit expectations. Like-for-like net income from its so-called "core" estate - those not earmarked for sale - was up 1.4% in its fiscal third quarter, and the same amount in the 44 weeks to June 21, it said.


Punch said its disposal programme remains on track to deliver at least GBP100 million of net proceeds for the full year, while it is continuing to invest in the core estate with an average spend of about GBP100,000 a pub.


Punch Taverns shares ended up 2.6% at 9.75 pence Thursday, before the company put out its debt restructuring update.







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Source: Alliance News


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