Punch Bondholders Reject $3.6 Billion Restructuring Offer

Punch Taverns Plc bondholders rejected the U.K. pub operator’s latest proposal to restructure 2.3 billion pounds ($3.6 billion) of debt.

A committee of senior bondholders, which already turned down a restructuring bid from Punch in April, said in an e-mailed statement it hadn’t been consulted on the revised terms before their June 10 announcement and the new offer is “not a fully formed proposal capable of being considered.”

The owner of more than 4,000 pubs has been injecting cash into its two securitization financings, known as Punch A and Punch B, to prevent them from breaching their conditions. Finance Director Steve Dando said the vehicles were “unsustainable” in a conference call with investors in October.

The Burton-upon-Trent, England-based company’s revised offer includes faster repayments of its senior notes, limits on the amount of cash that can be removed from bonds securitizing income from the pubs, and a proposal to buy back some higher-ranking bonds, according to a June 10 statement. The restructuring would cut Punch’s total debt service payments by more than 600 million pounds in the next five years.

The changes addressed some of the concerns of senior bondholders, including cash leaking out of the securitizations, the committee said in an e-mailed statement. The revised terms raised new issues, including prepayments to some note holders, as well as the higher interest cost of lower-ranking Punch B notes, it said.

Attempted Meetings

Punch said it has gone to “great lengths” to engage with the bondholder committee, including multiple offers to meet with it in the last month, the company said in a statement today. It also rejected the claim that due diligence material hadn’t been made available.

The new proposals are the company’s “best offer”, Stephen Billingham, Punch’s chairman, said earlier this week in a video statement. The changes to the terms “rebalanced” the offer toward senior bondholders, as well as leaving value for junior note holders and shareholders, he said. Punch’s capital structure includes liquidity facilities, a type of credit line, which mean junior note holders would have “value in just about all circumstances”.

The restructuring requires the backing of investors holding at least 75 percent of each of the 16 classes of Punch notes and the support of bond insurers Ambac Financial Group Inc. and MBIA Inc., as well as swap counterparties, Billingham said earlier this year.

The committee, which called on the directors of the securitizations to begin a restructuring process independent of Punch Taverns, represents blocking positions in all of the senior notes of both Punch A and B, according to today’s statement. Members of the committee include Kames Capital Plc, Legal & General Plc, Prudential Plc’s M&G unit, Standard Life Plc and Aviva Plc, note holders were told in an investor conference call in February.

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