FT: Punch bondholders meet potential new operators

The Financial Times has claimed that representatives of Punch's bondholders have held initial discussions with potential new operators for the company's tenanted pubs in case Punch defaults on its A and B bonds.

Analyst Douglas Jack, of Numis Securities, said: "If successful, this could reduce Punch's chances of successfully negotiating the terms of its bond debt, but improve the chances of an agreed default."

Jack said bond debt renegotiations could take many months. "We expect them to start in April, after the strategic review has been announced.

"Prior to the formal renegotiations, the bond-holders' process of finding a company to run over 5,000 pubs, whilst running its own estate and avoiding competition issues, is unlikely to be straightforward.

"Punch's current priority must be to minimise debt-related fees whilst ring-fencing value at PLC level (cash/Matthew Clark) and within the Spirit bond. We estimate this to be worth 100p/share.

"Punch must either successfully renegotiate the A and B bond debt (to stop PLC cash being used to support the bonds) or default the A and B bonds, in our opinion. The former would reduce financial risk and create equity value; the latter would crystallise equity value. A possible trigger point for this process is the cash tax upstream ending in August. "An agreed default would cap the equity upside, but it would also crystallise it, leaving a managed pub estate that has big turnaround potential with manageable debt (3.3x net debt:EBITDA).

"However, as we have indicated, the process is unlikely to be either straightforward or quickly resolved."