Punch Taverns: warning of a pub brawl

25 Oct

“In amongst all this complexity there is equity value,” said Roger Whiteside, chief executive of Punch Taverns. Really? Punch has £2.4bn of securitised borrowings and admits it cannot service those debts indefinitely while staying within the covenants.

Punch is down to its last £90m and is having to throw £20m-plus a year into the securitisations to prevent a breach of covenants. If events are left to run their course, the remaining cash would be consumed in the same fashion until a moment comes when administrators are called. Why would anyone want to own the shares in those circumstances?

Well, one reason is the bondholders’ strength is not absolute. Some are big banks and insurers, with socially useful virtues, who would not enjoy the collapse into bankruptcy of a firm that owns 4,600 pubs. It was the foolishness of the original bondholders that allowed Punch to be funded in the go-go years as an absurdly over-leveraged business. Dealing with an administrator might be seen as an unappealing prospect with an uncertain outcome.

That’s the basis on which Whiteside can be confident that “a consensual restructuring can be successfully implemented in a manner that delivers value for stakeholders”. The ingredients are not hard to imagine: a relaxation of covenants, a haircut for bondholders (some of the junior IOUs trade as low as 50p-60p already) and so on. Shareholders should not raise their hopes too high – the share price of 6p, implying equity value of £43m, is the market’s guess and seems reasonable.

But it would good to know the potential rewards for Goldman Sachs and Blackstone, advisers to Punch. They will be paid on a “success-based fee structure,” says Whiteside. But this is a shareholder versus bondholder negotiation where the goal is supposedly consensus. Success for whom? bondholders might ask.



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