Punch reveals split plans

21/03/2011

The Guardian reports this morning that Punch Taverns Britain’s largest pub company, will this week unveil radical proposals to tackle its £3bn debt burden after the shares slumped from 1,150p in 2007 to 68p amid fears of a default. Last year Punch lost £160m.

Ian Dyson, the chief executive, has been studying a number of options including breaking up the company by forming a new firm that would be separately listed on the stock market, consisting of Punch’s better performing managed pubs that include Chef & Brewer.

The rump group would take in the heavily indebted 6,000-strong tenanted pub estate, which would shrink via the sale of hundreds of poorly performing outlets.

Bonds have been issued against the tenanted pubs so holders of the debt would share in the upside as borrowings are reduced via disposals and closures. The move would depend on bondholders agreeing to a debt restructuring scheme to allow Dyson a free hand to shake up the balance sheet. It is uncertain whether Dyson has secured their agreement.

Punch has been looking at two other options: selling about a quarter of the tenanted pub estate, the equivalent of 1,000 outlets, or simply handing the keys of most of the tenanted estate to bondholders, by defaulting on loans that have been securitised against 5,300 pubs. That would leave Dyson with around 700 tenanted pubs and 800 of the more profitable, directly managed pubs.

Bondholders who acquired the debt are understood to have lined up potential buyers in case Dyson goes for the “nuclear option” and hands them the keys.

Sources say private equity groups and trade buyers have been talking about a possible sale of pubs to bankers at Rothschild, which is advising bondholders owed £2.6bn.

Punch is being advised by Goldman Sachs and Blackstone.Punch overstretched itself during the credit boom when it made a number of highly leveraged acquisitions. Punch chairman, Peter Cawdron, who is expected to step down shortly, said recently that conditions remain challenging across the economy and “especially the pub sector,” which has been hammered by the smoking ban, recession, increases in beer duties and cut-throat competition from supermarkets.”

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