A leading analyst has argued that Enterprise Inns is not in the same position as rival Punch Taverns despite both ‘vulture funds’ holding significant stakes in both companies. Geof Collyer, analyst at Deutsche Bank, said that unlike Punch, Enterprise Inns has options going forward with much of its cash flow outside of securitisation. He said: “With the equity sitting at less than 2% of the group’s enterprise value, we think that the Punch shares could be almost worthless in the event of a debt-for-equity swap on restructuring. The equity at Enterprise Inns is roughly 10% of the EV, so is Enterprise in a similar situation? Not in our view. True, Glenview (12.3%) is also Enterprise’s biggest shareholder and last week Luxor Capital went through 9% ownership of Enterprise Inns. However, unlike Punch Taverns, Enterprise generates around 55% of its operating cash flows from pubs held at the plc level, outside its Unique Pub Co securitisation (UPC), and so has options on how it manages its overall debt situation. “The group announced a plan to prevent UPC going into cash trap last year and is in the process of buying in bonds within UPC that will prevent it going below this level. “Enterprise is quite clearly a going concern, and is making positive progress towards achieving flat like-for-like net income in its tenanted & leased estate. Enterprise could support Unique for a number of years. But in the event it had to break the umbilical cord and part company with its securitisation, we saw 90p a share as a ‘worst case scenario’ for Enterprise equity. “However, following the plan now in train to buy back £75m worth of A3 and A4 Unique bonds that should keep Unique out of the cash trap position for the foreseeable future, we no longer see separation as either possible or probable. We never saw it as desirable. At the end of the third quarter of 2012, the group had purchased and cancelled £41m, leaving only £33m of bonds to be acquired in the open market over the next five quarters. "There is plenty of time, but we feel the market would rather tick this factor off its list of outstanding issues sooner rather than later.” According to the Sunday Times, five firms that specialise in distressed debt – Glenview Capital, (with around 20%), Octavian Advisors, Luxor Capital Group, Avenue Capital (which has also recently taken joint control of Travelodge following a debt-for-equity swap), plus Alchemy (30% in aggregate) - now own around 50% of Punch’s shares. Collyer said: “This may on the surface make the expected forthcoming debt restructuring talks more straightforward, though we doubt it. Punch Chairman Stephen Billingham – a debt restructuring specialist - joined the group around this time last year, so having had a year to assess the situation, should be gearing up for proper discussions once Punch’s year-end books are audited and cash upstreamed to the plc to enhance any negotiating stance that the group can muster. "All of Punch’s operating cash flows are inside its 2 securitisations (Punch A & B), both of which are not just below the cash trap level (the point at which cash flows cannot be upstreamed to the plc) but are in actual default (the point at which the bondholders take control); however, they are being held above these levels (Punch A above the ‘independent advisor’ level – one notch above default - and Punch B above cash trap) level due to significant cash support from the plc. This is because the bondholders cannot force Punch into talks if A & B are above the independent advisor level.”