Leading analysts have said that a default in one or both of Punch Taverns’ securitisations is looking the more likely outcome, after the group’s latest announcement on its restructuring proposals this morning.
Mark Brumby at Langton Capital said: “Our ignorance is lifting bit by bit and a default is now likely. This was perhaps the most natural outcome of the ongoing discussions and it should help to focus minds.
“We still believe that there would appear to be a tenable future for equity if the securitisation(s) go into administration – and the outcome would be better yet if they did not.
“It is not obvious that the company would or should suspend its shares and there is value in PLC. The cash, pubs and stake in Matthew Clark are obvious but the potential value of the tax losses is something of an unknown. This is a gamble and it is probably an ‘un-investable’ situation for most but, should the group trade through its current problems, it offers very material upside albeit at very considerable risk.”
Douglas Jack at Numis said: “Trading remains ahead, but it is insufficient to prevent at least one of the two bonds defaulting by 15 May if a consensual debt restructuring cannot be agreed with the bondholders.
“A default would be expected to have a material negative impact on the business, including material dis-synergies and disruption, in management’s view. This stance has been reiterated, hoping it will encourage a consensual agreement. A successful resolution should materially reduce future financial risk, but it is increasingly likely to require a debt for equity swap.”
Management has not acquired bonds nor injected EBITDA support into either bonds during the most recent quarter. As a result, one or both securitisations will fail their respective DSCR financial covenants when they are next tested and reported on 15 April 2014.
Punch’s restructuring proposals would have offered material equity upside, but have been rejected. The bondholders are working on an alternative plan which has a “broad base of support from senior and junior lender groups across the different classes of debt”.
