Punch Taverns offers to buy back chunk of securitised bond

Punch Taverns is today offering to buy back a chunk of its 'A' securitisation bond vehicle as a way of freeing up cash for the business.

The announcement had an immediate impact on Punch's shares, which leapt more than 15 per cent to 155p.

The pubco, which has seen its share price more than halve since the beginning of September, says it will repurchase the A3 (N) notes for 95 per cent of their par value, which is £93.5m.

The notes are currently trading at between 80 and 90. The 'A' securitisation is £2bn.

The move is designed to give the group access to between £60m and £70m a year, according to JP Morgan analyst James Ainley.

"If successful we think that this move would provide around 20 per cent headroom above the cash trap test levels in that securitisation and thus give the group access to £60m-£70m cash per annum.

"This would make refinancing the £295m convertible far more achievable in our view and therefore could resolve short term financing concerns."

If Punch were to breach its cash trap test level it would not be able to use profits to fund aspects of its day-to-day business; instead the money would be 'locked in' for a set period.

Ainley added: "We expect around half of the cash required [for this redemption] to come from the securitisation and the balance to come from group resources.

Although this action absorbs cash in the short term if it means that the group has access to the annual cash stream in Punch 'A' then refinancing, rather than repaying the convertible becomes an option in Dec 2010, Ainley believed.

On the subject of the group's Spirit and 'B' securitisations, Ainley said he expected both to fail cash trap rests in 2009 and 2010 respectively, although today's announcement did not affect these.

"Punch 'A' is the most significant as it is the largest securitisation and the most cash generative," he said.