Punch Taverns launches restructuring

A vote to restructure £2.3 billion in debt is set for 17 September in the UK pub group’s latest attempt to stave off default.

Punch Taverns, which operates around 4,000 pubs in the UK, has launched a restructuring proposal with full terms “broadly similar” to those outlined on 26 June, according to a stock exchange announcement.

The launch marks significant progress in long-running talks approaching almost two years to work-out approximately £2.3 billion (€2.9 billion; $3.8 billion) in unsustainable debt, as examined in greater detail here in the July/August issue of Private Debt Investor.

A vote is set for 17 September and the board of Punch has unanimously recommended that shareholders agree to dilute their equity holdings to around 15 percent. A firm placing and a debt write down of £600 million have been proposed. Junior noteholders will swap debt for equity in what effectively sees noteholders gain 85 percent control of the company.

The proposals have the support of roughly 65 percent of the notes in Punch A and Punch B securitisations, with £1.4 billion and £853 million outstanding as at 21 June 2014 respectively, and around 54 percent of the equity share of the company. 

In particular, a senior creditor group with a blocking position in both securitisations, represented by the ABI Special Committee, has officially given its support, after a number of concerns and criticisms it had over previous proposals were addressed.

Other junior noteholders and shareholders that have given their support comprise of investment funds managed or advised by Alchemy Special Opportunities, Avenue Europe International Management, Angelo, Gordon & Co, AG Funds, Bluecrest Capital Management, Glenview Capital Management, Luxor Capital Group, Moore Capital Management, Oaktree Capital Management, Seer Capital Management, Serengeti Asset Management and Warwick Capital Partners, according to the statement. Ambac, the monoline insurer for the Punch A securitisation, has also agreed to support the proposals.

The proposals require the support of 75 percent of all stakeholders, however, including all classes of noteholders and certain other creditors. The Royal Bank of Scotland, liquidity facility provider to Punch A and Punch B and hedge provider to Punch A; Lloyds Bank, liquidity facility provider to Punch A; Citibank, hedge provider to Punch B, and MBIA UK Insurance, the monoline insurer on Punch B, have yet to give their consent. Talks seeking their approval will continue, the announcement said.

By virtue of the structure of the securitisations, if a default were to occur, RBS and Lloyds would have to pay all noteholder interest, which would in turn put noteholder principal recoveries at risk. As previously reported, this ‘value’ has been reflected in the terms secured by junior noteholders, who were due to receive a step-up in coupon payments in July.

Covenant waivers, the second approved on 18 July, have helped the company avoid a default, but is conditional on a restructuring being approved by all necessary parties by 14 October.