Lloyds set to write off £600m as it takes stake in pubs group

Published on Monday 16 November 2009 20:20

LLOYDS Banking Group is set to do a debt-for-equity swap this week with a troubled pub landlord.

The deal could see the bank write off about 600 million in bad debts and take a 50 per cent stake in Chester-based Admiral Taverns.

According to its last accounts, Admiral owes 855m to Lloyds and a further 106m to Irish Nationwide. The group, which has about 2,000 leased and tenanted pubs, borrowed the funds to launch an acquisition spree at the top of the market.

A pre-pack administration and debt-for-equity swap are some of the options under consideration for the debt-laden group, which has also seen trading hit by recession. In the year to 31 May, 2008, the group made a 10.2m pre-tax loss on a turnover of 13.4m.

The looming restructuring of the business is another legacy of the reckless lending undertaken by the former HBOS business taken over by Lloyds last year.

Admiral Taverns was set up in 2003 by father-and-son property entrepreneurs Alan and Gary Landesberg. It embarked on a major expansion programme fuelled by loans from the Bank of Scotland's head of commercial, Peter Cummings.

Admiral's first deal was the purchase of 85 sites from tenanted pub group Enterprise Inns for 63m in March 2004. In 2007, boasting a 1 billion "war chest", the group purchased of 869 pubs from Punch Taverns, another rival, becoming the fourth biggest tenanted pub company in Britain. The company operates one pub north of the border, the Cavern in Irvine.

A spokeswoman for Admiral Taverns yesterday confirmed it was working on a financial restructuring, which it said "will provide a stable platform for the business". She added: "The plan does not involve any job losses, and it is intended that all payments to suppliers and contractors will continue to be made in the normal course of business."

The company admitted last year it had breached covenants and failed to make payments on interest and capital to its bankers. The group began its negotiations with Lloyds to sort out its problems in October.

The news comes after several companies owned by Edinburgh commercial property group Kenmore went into administration, owing Lloyds an estimated 700m.

The bank has written off a mammoth 13.4bn in the first half of this year, as well as 12.4bn in the second half of 2008. At the time, the bank said about 80 per cent of the charge was related to toxic HBOS loans.

Lloyds has announced a 21bn fundraising plan – including a 13bn cash call on shareholders – to strengthen its financial position following the HBOS takeover.

The bank, which last week announced plans to cut a further 5,000 jobs in 2010, is raising the funds to avoid a taxpayer-backed insurance scheme, which would have seen the public stake rise to 62 per cent.