Punch Asks Bondholders to Back Restructuring or Risk Default

Punch Taverns Plc, the U.K. pub operator that’s seeking to restructure about 2.3 billion pounds ($3.8 billion) of bonds, asked noteholders to accept the final terms of a debt deal, saying the alternative is default.

The offer, which modifies proposals published Dec. 9, will reduce the company’s borrowings by canceling some notes in return for cash payments or issues of new securities to bondholders, it said in a statement. The changes include increased interest rates on some of its debt, modified repayments on other parts and strengthened covenants.

Punch has been negotiating with stakeholders since October 2012 to cut its debt burden as the owner of more than 4,000 pubs seeks to combat a decline in sales. Senior bondholders demanded better terms from the Burton-upon-Trent, England-based company three times last year and said in a statement today they were reviewing the revised terms.

“There are conflicting demands and in our view, this is the best deal that can be done,” Executive Chairman Stephen Billingham said in a telephone interview. “We cannot give all noteholders all their demands. But if you look down their list of asks from December, they’ve got nearly all of them.”

Bondholders will vote on the proposal Feb. 14 and a failure to effect a restructuring is expected to “lead to default in the near term,” Punch said in its statement.

The company has 16 classes of notes split between two securitization structures, known as Punch A and B, and 75 percent of holders of each class must back the deal for it to be accepted, Billingham said.

Hedge Funds

A group of hedge funds including Glenview Capital Management own more than 50 percent of the company’s shares and have stakes in parts of the Punch B debt, Punch said last year. Its shares were unchanged at 16.25 pence at 12:15 p.m. London time.

The senior bondholder group has blocking stakes in some of the debt portions and it hadn’t agreed to the proposals prior to the announcement, according to a statement today. Earlier proposals were “moving in the right direction,” but “still needed further work to gain approval,” according to a Dec. 10 statement.

The noteholder group includes Kames Capital Plc, Legal & General Plc, Prudential Plc’s M&G unit, Standard Life Plc and Aviva Plc, according to an investor conference call last year.

If bondholders don’t back the offer, 188 million pounds of cash held within the securitizations would be used to repay the class A notes at par rather than be used for the restructuring, Punch said. Rejection of the proposals would also mean the company wouldn’t contribute 52 million pounds of cash to the debt deal.

“The hurdle is very high, but the economics are such that they should support it,” Billingham said. “If one of the classes doesn’t go through, it fails.”

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