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Opinion

Corporate securitization: Trouble brews in UK pub sector

Bondholder standoff on the cards at ailing Punch.

Long a poster child for the concept of corporate securitization, the UK’s largest pub group, Punch Taverns, now finds itself at the centre of what could be a spectacular disintegration of the concept. An eyewatering 97% of Punch’s £5.2 billion ($8 billion) pub estate has been securitized – a process driven by former chief executive Giles Thorley, who co-founded Nomura’s Principal Finance Group with Guy Hands in the early 1990s. These deals are, however, now on life support, and the stage is set for a landmark standoff between bond and equity holders over their future.

The pub operator, which expanded rapidly before the credit crisis, has struggled since, experiencing a 20% decline in trade beer volume over the past three years. The managed pub business is faring better than the leased and tenanted business but overall the group is saddled with £3.14 billion of debt, giving it a net debt-to-ebitda ratio of 7.5.

Most of the leased estate (5,325 pubs) is held in two securitized vehicles that now require financial support to the tune of £43 million a year to prevent them from breaching their debt service coverage ratio triggers. This is a situation that must be sorely trying equity holders’ patience and, with the recent appointment of new chief executive Ian Dyson, one that is likely to come to a head in the first quarter this year.

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