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Punch Restructures Debts

Wednesday, January 15, 2014

Which Party Will Emerge With Assets Not Clear As Punch Heads For “Valentine’s Day” Showdown With Lenders Says GMB

Interest payments on these huge debts have to be paid each week before the tenant pours a pint and it is these debts that is pricing pubs out of the market and they have closed in droves says GMB.

GMB, the union for tied pub tenants, commented on reports that Punch Taverns which owns over 4,000 pubs across Britain faces a bitter backlash from its senior lenders after it launched a restructuring of its £2.3bn debt pile on Wednesday 15th January 2014. see notes to  editors for article from FT.

Steve Kemp, GMB lead officer for tied tenants, said “This proposal to restructure Punch’s debt pile puts into sharp relief the wrongly held view that shareholders in a pubco own a pub business.

In fact the Punch shareholders don’t own a pub business; they own a holding company which invests in and manages incomes from pubs- these are called pub securitizations.

These securitizations are the infernal machine that is closing pubs across the country. It is the same infernal machine that drove Southern Cross care homes to the wall.

It is not clear which party will emerges with the assets from this showdown between the holding company and its lenders. The lenders are due to vote on the proposals on Valentine’s day (Feb14th).

The Punch £2.3 billion debt pile is part of £111 billion estimate that buyout companies in the UK will have to refinance over the next number of years.

Punch like the rest of the property companies that own over half of Britain’s pubs are forced to charge sky high rents to tied tenants of these pubs to pay interest on massive financially engineered debts. These debts are held mainly by bondholders in offshore tax havens.

Interest payments on these huge debts have to be paid each week before the tenant pours a pint and regardless of whether s/he can make ends meet or not.

To pay these sky high rents a pint of lager is on average 80p per pint higher and ale is 65p per pint higher than justified by inflation and like for like changes in taxes since 1987. This is pricing pubs out of the market and they have closed in droves.

Parliament needs to press on to legislate the statutory code with a free of tie option with tenants able to buy products on the open market and pay a fair rent for the building. The aim is to lower sky high rents and wholesale prices charged by pubcos.

We need Parliament to legislate option 3 in the draft statutory code to allow tenants to buy products on the open market and pay a fair rent for the building."


Contact: Dave Mountford GMB branch secretary for tied pub tenants 07792 198 954 or 07794 021212 or Steve Kemp 07730 898102 

Notes to editors

Article from Financial Times dated 15th January


By Lina Saigol and Duncan Robinson

Punch Taverns on Wednesday issued a stark warning to bondholders asking them to agree to “final terms” for restructuring £2.3bn of debt or face default.

Britain’s second-biggest pub group said the offer – which comes after 14 months of negotiations – would shrink the company’s debt by cancelling some notes in return for cash payments or issues of new securities to bondholders. The changes include increased interest rates on some of its borrowing.

Stephen Billingham, executive chairman of the group, said the restructuring would create a robust debt structure which would provide certainty and stability for the business. “However, failure to do so will lead to a much worse outcome,” he said in a statement.

But major bondholders were unhappy about the proposals, arguing that the terms are too generous to both junior bondholders and the bank’s equity holders – which in some cases are the same US hedge funds.

The Association of British Insurers – which represents the holders of Punch’s senior debt and has blocking stakes in a number of classes of Punch A and B notes – said Punch had not agreed the revised proposals with it before the announcement.

Punch, which has 4,100 leased pubs, amassed large amounts of debt through a series of acquisitions following its float in 2002. The UK smoking ban and competition from cheap alcohol sold through supermarkets have hurt revenues and forced it to close pubs.

The group has been locked in negotiations with bondholders over its refinancing plans since October 2012. Senior bondholders demanded better terms three times last year.

The tenanted pub group has a complex debt structure, with debt split into two securitised vehicles, Punch A and Punch B.

It is proposing to reduce total net debt from £1.5bn to less than £1.2bn in the larger of the pub group’s two securitisations, by writing down some of the group’s junior notes.

A statement from a special committee of the ABI said: “The committee and its advisers have had limited interaction with the company and its advisers since the previous proposal announced on 9 December 2013. The committee’s advisers did not have sight of transaction documents before today’s announcement.”

Punch said failure to agree the terms would mean cash resources would be severely depleted, with the mandatory repayment of £188m of available cash to Class A notes at par and the loss of the £52m group cash contribution.

Shares in Punch were down 1.2 per cent at 16p in lunchtime trading, giving the group an equity value of a mere £100m.

A restructuring requires approval by a majority of 75 per cent of bondholders in each of the 16 classes of debt. Bondholders are due to vote on the restructuring proposal on February 14.

It has seen its underlying performance improve in recent weeks. In a trading update for the 20 weeks to January 4, like-for-like net income rose 1.5 per cent in its core estate, which excludes some 1,106 pubs it has earmarked for sale once they become vacant.



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