PUNCH Taverns, the heavily indebted pubs group, has been urged by a City analyst to default on two securitised loans worth around £2.6bn.
The loans, known as A and B, have been securitised against 5,300 pubs. They currently require increasing levels of financial support from the parent company, currently around £43m a year, and yesterday Peel Hunt analyst Paul Hickman said Punch would do best for shareholders by walking away from its commitment.
Hickman said: “It is quite clear that the bond structure that finances most of the tenancies is unsustainable.
“It is now crucial that a clear solution is imposed. Having considered alternatives, we believe the preferable outcome is to allow the A and B securitisations to default.
“We believe shareholders should use their influence to press for this outcome. Once this issue is resolved, the value in Spirit and group assets, which we put at 91p, will be apparent.”
Punch chief executive Ian Dyson is currently undertaking a review with the objective of exploring options “to create value for our shareholders”.
Yesterday Punch said it was considering all its options, which appear to include some form of debt write-off on behalf of the bondholders.
Sources close to the company said it was unlikely there would be a conclusion to Dyson’s review before February.
Dyson is being advised by Goldman Sachs, with Anthony Gutman leading the team, and Citigroup. Blackstone is also advising on its capital structure.
Hickman acknowledged that a default by Punch “would be tricky from the bondholder institutions’ point of view” and would make it tricky for the group to raise further bonds.
But Hickman said it was crucial for the group to make the move so that it would focus minds on the value of the group’s other assets and especially its Spirit estate.
“Continuation of the present A and B bond structures is not an option. They would need increasing levels of financial support, currently £43m per annum, and equity shareholders would not be well served by the medium-term drain on value.”
Shares in Punch Taverns rose 6.62 per cent to 69.25p on the back of Hickman’s comments and talk that the group could attract a bid.