Punch could face break-up as talks over debt hit wall
The newspaper reports that according to insiders, increasing the chances of the pubs group defaulting on its debt repayments and going into administration.
If this happens, shareholders, including hundreds of staff who own shares through the employee share plan, would see their holdings become worthless, and it could lead to a break-up of the company.
Punch, which owns about 4,000 pubs, has been in talks for months to restructure its crippling £2.4bn debt, built up during a lengthy spending spree. The debt is tied up in two divisions, Punch A and Punch B, which between them own one in ten of Britain’s pubs.
Both divisions would already be in default were it not for the parent company paying about £2m each month to keep them from breaking their loan covenants.
Under the company’s proposals, some lenders would write down their debt and others would have to accept later payment by several years to buy time to turn the company around.
A group of bondholders last month rejected the plans and said the company had to come up with something better if they were to reach agreement. However, last week there was still no sign of any forward movement in the talks and Punch is yet to put forward any new solutions.
One told The Mail on Sunday that talks were in deadlock and accused the company of “putting out a proposal which is only acceptable to shareholders”.
He added: “The proposal does not address the problems of the business and the bondholders will not be coerced into accepting such a deal.”
The plan needs the approval of three-quarters of creditors for the restructuring to be implemented. Punch has said that it wants an agreement to be reached by the end of next month, or the company could go into default.
This would trigger a process in which a receiver would be appointed who could choose to sell or close pubs to pay back the debts.
Shareholders could be left with nothing and the company might cease to exist.
A company source said: “We are still trying to achieve a solvent restructuring.”
But one key shareholder described the talks as “slow and fairly torturous” and added: “The company could end up being forced down a pre-pack route, which would wipe out the shareholders, including many employees.”
A pre-pack is a form of agreed insolvency in which a firm is declared bust and its assets sold off to new owners in a single step.
Like rivals, Punch has been struggling in recent years with high taxes, falling beer sales and cheap supermarket alcohol. It recorded a pre-tax loss of £16.7m in the six months to the end of March.
