No cast-iron reassurances over deposits for Punch tenants

Save the Pub Group chairman and MP Greg Mulholland enquired of Punch Taverns on behalf of its tenants about the security of their deposits in the event of the company defaulting on its debt repayments.

The standard response would usually be: “The company isn’t going to go bust, so it’s irrelevant.” But the problem for Punch is that it has been able to give no such assurances, pending the outcome of its protracted and complex refinancing negotiations.

The company is saddled with £2.3bn of net debt (equivalent to more than £500,000 for each of the company’s pubs) and has been engaged in a long-running negotiation with its bondholders to reduce this liability to more manageable proportions.

Unimpressed​

But to date, representatives of these debt financiers have been unimpressed with Punch’s proposals, with further talks planned after a meeting with its creditors scheduled for 14 February was postponed.

By Punch’s own admission, failure to secure agreement will likely lead to an administrative receiver being appointed to one or both of the securitisations in which Punch’s debt is contained, and risks subjecting the company to years of financial purgatory between salvation and damnation.

An administrator would immediately take control of all of the company’s property and manage the company’s affairs in accordance with proposals agreed by and in the interest of its creditors.

So what would that mean for Punch’s depositors?

They made their deposit payments in good faith as part of their ingoings on entry to their pubs on the understanding that they would be returned (minus any unpaid debt) at the end of their tenancy.

But we now understand that this money — £22.6m in total (equivalent to an average of around £5,000 per pub) — is not ring-fenced in a hypothecated account outside of the company’s general current liabilities.

It simply sits on the company’s balance sheet under the descriptor “trade and other payables”. And as such, it would be repayable, in the event of liquidation, only in line with repayment of dues to other unsecured creditors, at the back of the queue behind more senior debt.

Uncertainty​

Punch has insisted that “it would not be in the interests of an administrative receiver to act in a way that is prejudicial to tenants and their rights” and urged its bondholders to “bring an end to uncertainty for our 4,000 tenants by voting in favour of the final restructuring proposal”.

But this doesn’t sound like the cast-iron reassurance that Mr Mulholland and Punch tenants have been seeking.

So for those who have been secretly (and some certainly not so secretly) hoping for the Punch empire to come crashing down, here is something to make them realise that life under administration might not be the passport to freedom they’ve been imagining.