The Orchid Group, the c.300-strong managed pub operator, is set to breach covenants on its £42.4m of debt, after reporting a pre-tax loss of £17.24m for the year to 1 January 2011 and writing down the value of its estate by £10.9m. The company, which went through a pre-pack administration at the end of 2008, forecast that it was to breach some of its existing covenants at the end of last month and “thereafter due to current trading patterns”. The group said that discussions were ongoing with its lenders as to possible solutions. It said that assuming these discussions were successful it “will be possible to establish new loan covenants”. It said that it considered the existing facilities “not appropriate to the group’s long-term needs”. The directors of Orchid also said they had a “reasonable expectation that sufficient and appropriate loan facilities suitable to the company’s and the group’s needs will continue to be available for the foreseeable future and that appropriate revised covenants will be set as part of the process”. For the 52 weeks to 1 January 2011, the group reported that pre-tax losses had widened from £1.83m in 2009 to £17.24m. It made an operating loss of £13.03m in 2010 compared to a profit of £2.35m in the previous 12 months. Turnover fell from £182m in 2009 to £173m last year. At an ebitda level, Orchid produces £38m. At the end of 2008, the company, which is led by Rufus Hall and backed by US private equity group GI Partners, undertook a pre-packaged administration, dumping onerous leases and striking new financial agreements with its banks – HBOS and Deutsche Bank. The process saw it leave 48 leasehold bars and pubs with the administrator and immediately saw a new company, led by Orchid’s management, buy back at least 240. The company, which is backed by GI Partners, was formed two years ago when it bought 290 ex-Spirit pubs from Punch Taverns for £571m. At the time, the company said it hoped the restructuring would put it in a strong position to lead any sector consolidation. Since undergoing the pre-pack, the company has taken back 10 sites from the collapsed operator of Bar Room Bar and acquired the 43-strong Premium Bars & Restaurants business out of administration. It owns brands including The Living Room, Ultimate Leisure and Bar Room Bar as well as a collection of individual pubs, restaurants, bars and clubs.