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CAPITAL MARKETS

Pub securitization: Real estate pushes pubs through single-A ceiling

Higher underlying ratings will change the economics of the pub securitization market.

Cheers! M&B’s new paper got a triple-A rating on its underlyings from Fitch

UK pub group Mitchells & Butlers (M&B) tapped its 2003 managed pub securitization in mid-September. The structure of the deal itself was unremarkable – the issuer simply replaced its outstanding floating rate notes with £620 million equivalent of new paper – but what was significant was the rating. This is the first time that the underlying rating on a UK pub securitization has topped single-A. The underlyings were rated double-A by Standard & Poor’s (S&P) and reached triple-A with Fitch. This is good news for the pubs and bad news for the monolines.

The fact that an underlying pub portfolio can reach triple-A on its own is a sign of a change in rating agencies’ attitude towards this asset class and moves taken by M&B to strengthen the secured pool.

The latter includes the removal of 166 smaller drinks-led properties from the pool and the addition of 16 predominantly food-let properties. This is driven by the full ban on smoking in pubs due to be imposed in England in mid-2007.

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