Punch restructuring comes to an end

Almost two years since it began, the restructuring of around £2.3 billion (€2.9 billion; $3.8 billion) in debt sinking one of the UK’s biggest pub landlords, Punch Taverns, has been completed.

All stakeholder approvals became effective yesterday (8 October), ensuring the group could then issue 3,771,151,200 in shares on the London Stock Exchange, in accordance with the restructuring agreement. Punch’s share price subsequently fell to its lowest level in 21 months, Reuters reported, and currently stands at 8.25 pence. As a result, all conditions of the fifth restructuring proposal launched in August this year have been met, a stock exchange announcement yesterday confirmed.

The company’s debt burden has reduced by £600 million including the mark-to-market on interest rate swaps, and shareholder equity has been diluted to just 15 percent of the company with the issuance of the new shares, in a deal which effectively hands control of the company to certain noteholders, including distressed investors who built up a position in the junior debt.

Stephen Billingham, executive chairman of Punch, commented: “I am pleased to announce the completion today of our restructuring, bringing to an end the long and complex restructuring process. We believe that this restructuring will provide stability to the business and will allow Punch to build on recent improvements in trading and lead to further deleveraging, through strong cash generation.

“It is a great credit to our partners and staff that we have been able to drive our business forward over the last few years against the backdrop of the uncertainty caused by the restructuring process. We can now focus on improving our business through capital investment in our pubs, getting the best partners working with us and providing the support our partners need to launch and develop their pub businesses.”

Also outlined in the announcement were details on the termination of certain interest rate swaps on securitisations Punch A and Punch B, replaced with new facilities provided by the original lenders. Punch A and Punch B, with £966.4 million and £637.9 million now outstanding, have been substituted with a £123.4 million super senior hedge note from Royal Bank of Scotland and a £49 million super senior swap loan with Citigroup, respectively. 

Royal Bank of Scotland, also a liquidity provider to the Punch A and Punch B securitisations, received credit committee approval to consent to the restructuring just this week. Earlier this month, Lloyds Bank, a liquidity provider on Punch A also consented. Shareholders and noteholders officially approved the proposals at a vote on 17 September. Monoline insurers Ambac and MBIA also gave their approval.

A last push to increase support for the restructuring was made in early September when it was announced that seven holders of junior classes of notes across Punch A and Punch B purchased Class B3 notes in the Punch A notes. These holders included investment funds managed by or advised by Alchemy Special Opportunities, Avenue Europe International Management, Angelo Gordon (or AG Funds), Glenview Capital Management, Luxor Capital Group, Oaktree Capital Management and Warwick Capital Partners. Glenview, Luxor, Avenue and Angelo were also shareholders at the time.

Gross securitisation debt now stands at £1,604 million (excluding the mark-to-market on the interest rate swaps) at completion and has an initial effective interest rate of approximately 7.7 percent including payment-in-kind interest or roughly 7.1 percent cash pay interest.

The company has £96 million of cash including £21 million cash held in the group supply company and employee benefit trust. Consolidated net debt to EBITDA ratio falls to around 7.7 times based on net debt of £1,508 million.

A further update on operational plans will be provided by Punch when it announces its annual results on 12 November 2014.