Punch Taverns hammered over fresh debt plans

Debt-laden pubs chain Punch Taverns saw its shares slump by almost a third yesterday after it put forward a refinancing package that would nearly wipe out its equity investors.

Stephen Billingham: decision would be carefully considered

The plan will see creditors take a chunk of stock in the company in a debt-for-equity swap, with some also offered cut-price shares. Although the move would result in Punch’s £2.3 billion debt pile being cut by about a quarter, or £600 million, shareholders will see their holding slashed to 15 per cent.

Shares in the UK’s second-biggest pub landlord, which has more than 4,000 leased and tenanted venues, ended the day down 4.25p, or 29.3 per cent, at 10.25p.

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The firm, led by executive chairman Stephen Billingham, said: “Any decision by the board to recommend a proposal involving dilution of existing shareholders would need to be carefully considered in terms of the value which it represents for existing shareholders.”

The company’s complex debt pile, built up during an acquisition spree over the past decade, is split across two securitised vehicles. The plan, which is backed by 34 per cent of the group’s debt holders, would see junior notes in both exchanged for a combination of cash, new junior notes and shares.

However, given the complicated debt restructuring, the company will be unable to launch the plan before a default deadline at the end of next month, meaning it will need an extension to covenant waivers.

Punch has about 400 Scottish pubs, including Edinburgh’s Malt Shovel and the Cairns Bar in Glasgow. Its latest proposal comes three months after the firm admitted defeat over an earlier plan, which did not involve a debt for equity swap. Some bondholders had described the previous blueprint as “unsignable”.

Analysts at Numis cut their recommendation on the pub chain’s shares from “hold” to “sell”, with a target price of 10p, although the broker added: “We estimate debt reduction should grow this equity value by 17 per cent a year.”