Stephen Billingham, chairman of Punch Taverns Plc (PUB), the U.K. pub owner that had its proposal to restructure 2.4 billion pounds ($3.7 billion) of debt rejected by bondholders last month, said the debt plan works.
“We think the proposal is the best one, it is the one that works,” Billingham said in a telephone interview today. “It is very difficult to work out what a counter proposal would look like. It’s not a straightforward normal restructuring, avenues available are relatively small.”
A committee formed in December 2010 and largely representing senior bondholders rejected the offer in March. The Association of British Insurers committee said it didn’t address the business’s operational issues or provide a way for the debt to be refinanced or repaid.
Punch has two unsustainable debt structures, called Punch A and Punch B, which need cash injected to avoid a breach of covenants. Under the plan proposed on Feb. 7, Punch would cut the debt in one of its vehicles by 229 million pounds through a deal with junior bondholders. Punch proposed paying them 93 million pounds in cash and issuing new debt worth 56 million pounds.
The deal would reduce annual interest payments by about 10 million pounds and had the support of holders of more than 50 percent of shares, said the Staffordshire, England-based company.
“If the debt restructuring proceeds, we estimate that Punch’s share price would be 26 pence,” more than double the current price Douglas Jack, an analyst at Numis Securities Ltd. in London who advises buying the stock, wrote in a note today.
The shares rose as much as 13 percent in London to 12 pence, its biggest intra-day gain since Feb. 18. More than 490,000 shares were traded, 36 percent of the three month daily average, according to data compiled by Bloomberg. The stock has gained 47 percent this year, giving the company a market value of 78 million pounds.
Punch’s proposal recognizes “the structures that have been set up in the securitisation,” Billingham said today. “It recognizes the contractual relationship. We think it can be delivered.”
Punch, which today announced a 21 percent decline in first half pretax profit, said the cost of supporting its securitizations in the second half of the year would probably be “significantly higher” than in the first half.
“Failure to effect a restructuring solution for either securitisation in the near-term may result in the Group cease to provide financial support to one or both of the securitisations, which in turn would result in a covenant default in the relevant securitisation,” Punch said in today’s statement.
Billingham said the company reviews the situation on a “month by month basis.”
Punch has 2.4 billion pounds of debt outstanding, according to data compiled by Bloomberg. Greene King Plc (GNK) has 1.5 billion pounds, Marston’s Plc (MARS) 1.2 billion pounds and Enterprise Inns Plc (ETI) 2.8 billion pounds. The company’s debt, mortgage-like borrowings secured against its pub estate, was built up through acquisitions in the last decade.
Since then, the industry has suffered from a decline in beer consumption, a smoking ban in pubs, discount alcohol from supermarkets and the onset of a prolonged recession.
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