Is Regent the next pre-pack?

There is growing speculation that Regent Inns, the troubled bar and restaurant operator, could be the next company to undergo a pre-pack administration. The operator of the Walkabout, Old Orleans and Jongleurs brands is to leave the stock market in two weeks time, a move designed to allow it to undertake the surgery the business urgently requires away from the glare of the public eye. But what does that surgery look like? Speculation is mounting that, given the number of properties with onerous leases that Regent operates, and its mounting bank debt, the company will look to rid itself of its most challenging sites and re-set its debt levels. It almost looks like a “no brainer”, as they say. It has about a dozen leasehold properties currently on the market through Christie and Fleurets, including a closed Walkabout bar in Durham that had takings of £695,510 last year, against an annual rent of £112,500. The Grimsby Walkabout – still thought to be trading – has takings of £425,059 against a rent of £137,500. A so-called pre-pack would see it leave behind a clutch of sites and possibly undertake a debt-for-equity swap with its banks. This would be executed via an administration process that would see the profitable core of the business taken forward into a new company. Shareholders would lose their entire investment. Regent and its banks may also be minded to subject the company to a pre-pack process due to its exposure to reversionary leases – since 1993 it has sublet more than 80 leasehold properties. If any purchasers of those sites should collapse the sites will revert back to Regent. The group, led by chief executive John Leslie, is currently being advised by the Delphi Partnership, a boutique corporate finance firm set up by Jonathan Garbett, former chief executive of Dawnay Day Corporate Finance. A number of companies from the eating and drinking-out market have undergone pre-pack administrations, the biggest being Orchid Group, the pub and restaurant operator backed by GI Partners. Others include Alphabet Bars, Baker & Spice, FishWorks, Food & Drink Group, Gourmet Restaurants, Herald Inns & Bars, Lovejuice Bars, Massive and SAV Pubs. As Geof Collyer of Deutsche Bank recently illustrated in a recent research note, any such activity at Regent would have massive implications for Punch Taverns. Around 30 leasehold sites under the Old Orleans brand were assigned to Regent from Punch’s managed arm Spirit in September 2006. If Regent was to collapse, any sites not taken forward into a new company would revert back to Punch. Punch has already been forced to take back about 45 leases from Orchid and about 20 bars following the collapse of Bar Room Bar. Collyer said: “The danger is now the problem could get worse — from two angles, both relating to Regent Inns. “Now Regent has gone private, there is a possibility that it seeks some kind of financial restructuring off-market, which could see some of the 31 Old Orleans sites Punch sold Regent in 2006 coming back to Punch. “The second relates to something outside of Regent’s control. Back in February, it gave out details of the number of outlets that the group has sublet or assigned since 1993 — 82 venues. So Regent is vulnerable itself to reversionary lease pressure caused by sites getting into financial difficulty through tough trading conditions on the high street. In a worst-case scenario for Regent, Old Orleans sites would revert automatically. “Punch must hope Regent stays solvent to avoid the problem getting any worse.” What is certain is that until the rules are changed more pre-packs will follow in this sector – some under the orders of the banks – as companies try to re-build businesses with sustainable profits.