Pubco Heads For Lifeboat
Tuesday 22nd March 2011
PUNCH SHAREHOLDERS HEAD FOR
THE LIFEBOAT AND ABANDON SHIP
SINKING WITH £3.5 BILLION DEBTS WITH 5,967 IMPERILED TIED
TENANTS
Private equity inspired pubco
Punch abandons 6,000 local pubs making private equity truly the
fifth horseman of the apocalypse says GMB the union for tied
tenants
GMB, the union for tied tenants,
commented on plan by Punch to demerge it's tied and managed
business.
Paul Maloney GMB National Officer for
tied tenants said "Last week saw private equity inspired
Southern Cross care homes group put 31,000 elderly residents in
danger of being made homeless. This week it is the turn of private
equity inspired pubco Punch to abandon 6,000 local pubs. Private
equity is truly the fifth horseman of the apocalypse.
Punch top management realise
that the current structure is unsustainable and are heading for the
lifeboat. They correctly conclude that the decline in trade in pubs
will continue as long as they are priced out of the market trying
to pay mountainous debts.
The solution they have come up
with is to head for the lifeboat and abandon the ship being sunk by
its crippling £3.5 billion debt and leave the imperiled 5,967 tied
tenants to sink with the bondholders.
The pubs are in
three investment vehicles: Punch A, Punch B and
Spirit. Punch A and B are soaking up cash.
So the plan is to split in two with the better
performing managed side, Spirit, being demerged into a
separate PLC. This is expected to
be completed by the end of the summer. The plan is for A and B to
become a separate cash trapped leased zombie business. This is to
be reduced to 3,000 pubs, down from 5,967, selling off 500 a
year.
Yet again it is the tied
tenants and their customers and the communities they serve that are
going to suffer as this is not a real solution. If Punch admit that
trade in pubs is in decline due to being priced out of the market
how do they expect the remaining 3,000 pubs to stay open and be
profitable?
As we see it debts in A and B
to get worse. GMB calculated The debts average
£534,901 per pub and interest payment and costs linked to the loans
amounts to an average of £271 per day per pub and is payable
whether the pub is trading at a profit or not.
The fate of all 5,967 tied tenants looks
bleak. See notes to editors
This is the plan but it needs
the approval of the bondholders. The only real solution is to
convert the debt to equity is a combined pub business as GMB
proposed in November last year. We said then that
for a thriving pub sector we need pub companies
charging open market rents to tenants who can compete on price in
buildings refurbished to a high standard and where customer service
and care is the top priority. That way there will be a decent
income for all the stakeholders. This is still the case.
"
End
Contact Paul Maloney 07801 343 839,
Paul Clarke 07713 077193 or GMB Press Office: 07974 251 823 or
07921 289880
Notes to Editors
This is the text of GMB press release
of 17th November 2010
GMB CALL ON PUNCH TAVERNS
BOARD TO EXPLORE WITH BONDHOLDERS THE CONVERSION OF £3.6 BILLION OF
DEBTS TO EQUITY FOR MORE VIABLE
PUBBUSINESS
The debts average £534,901
per pub and interest payment and the costs of insuring the
loans amounts to £271 per day per pub and is payable whether the
pub is trading at a profit or not
GMB, the union for tied tenants,
is calling on Ian Dyson Chief Executive and the Punch Taverns
board to explore with its bondholders the conversion of its £3.6
billion debts to equity to ensure a more viable pub business. This
call comes as a result of a detailed study undertaken for GMB by
outside experts of the published accounts of the group and the
securitised vehicles within it.
The key numbers arising from the
study are set out in the two tables below. They lead GMB to
conclude that the common view that shareholders in Punch Taverns
own a pub business is wrong. The analysis shows that 92 per cent of
its assets are securitized: they belong not to shareholders, but to
three investment vehicles: Punch A, Punch B and Spirit. GMB
conclude that shareholders don't own a pub business; they own a
holding company which invests in and manages pub securitizations.
These bonds in these vehicles are due for repayment in 2033 and
2035.
GMB calculates that the debts per
pub averages £534,901. The interest payment alone amounts to
£36,373 per year per pub.There are also huge costs of derivative
financial instruments to insure the debts amounting to an average
of £62,000 per pub in 2010. Thus financing cost are on average
£98,554 per pub per annum or £271 per day per pub.
The figures show Punch A and Punch
B are soaking up PLCcash and both are cash
trapped. The company as a whole made a loss of £159.1 in year to
end August 2010. The figures show that the company has little scope
for capital expenditure to upgrade the estate nor is there scope to
pay a dividend. The figures show that Punch has disposed of 2.486
pubs since the peak year in 2006 when it had a total of 9,256
pubs.
Earlier this monthMorgan
Stanley analyst Jamie Rollo said that Punch shares could be worth
as little as 5p in the worst case but could reach 110p if they
recovered. GMB are unable to comment on this.
Punch Taverns – analysis of the
published accounts
|
|
|
year end August
2010
|
|
|
|
|
|
|
|
|
Finance
A
|
Finance
B
|
Spirit
|
|
total of
3
|
|
Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
number of pubs
|
3,147
|
2,178
|
1,222
|
|
6,547
|
|
6,770
|
|
|
|
disposals
|
509
|
331
|
77
|
|
917
|
|
936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
£ m
|
£ m
|
£ m
|
|
£ m
|
|
£ m
|
|
|
|
EBITDA
|
187.8
|
131.8
|
130.7
|
|
450.3
|
|
387.6
|
|
|
|
Interest payments
|
125.9
|
67.8
|
65.6
|
|
259.3
|
|
|
|
|
|
Turnover
|
342.5
|
223.4
|
643.6
|
|
1,209.5
|
|
1,283.0
|
|
|
|
Gross Profit
|
219.0
|
155.3
|
|
|
|
|
|
|
|
|
Profit / Loss before tax
|
-196.5
|
-98.7
|
-168.4
|
|
-463.6
|
|
-159.1
|
|
|
|
Profit / Loss after tax
|
-152.7
|
-79.9
|
-111.8
|
|
-344.4
|
|
|
|
|
|
Net Assets
|
772.6
|
499.7
|
|
|
|
|
|
|
|
|
Operating profit
|
176.2
|
127.6
|
86.4
|
|
390.2
|
|
|
|
|
|
Debt Service Cover Ratio
|
1.41:1
|
1.48:1
|
1.92:1
|
|
|
|
|
|
|
|
Net worth
|
439.8
|
320.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total assets less current
liabilities
|
2,087.0
|
1,286.0
|
1,643.6
|
|
5,016.6
|
|
5,436.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Creditors:
|
|
|
|
|
|
|
|
|
|
|
Loans
|
-1,622.0
|
-969.3
|
-910.7
|
|
-3,502.0
|
|
-3,665.8
|
net debt
|
|
|
Derivative Financial
Instruments
|
-223.7
|
-35.8
|
-147.6
|
|
-407.1
|
|
-349.2
|
|
|
|
Amounts due from (to) Group
Undertakings
|
556.5
|
237.0
|
-1,024.3
|
|
-230.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Assets /
(Liabilities)
|
772.6
|
499.7
|
-457.8
|
|
814.5
|
|
1,474.6
|
|
Punch Pub numbers
|
Punch Taverns pub
numbers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August-02
|
August-03
|
August-04
|
August-05
|
August-06
|
August-07
|
August-08
|
August-09
|
August-10
|
|
Pubs
|
4,302
|
4,515
|
7,334
|
8,227
|
9,256
|
8,448
|
8,424
|
7,676
|
6,770
|
|
change
|
|
213
|
2,819
|
893
|
1,029
|
-808
|
-24
|
-748
|
-906
|
|
% change
|
|
5.0
|
62.4
|
12.2
|
12.5
|
-8.7
|
-0.3
|
-8.9
|
-11.8
|
Paul Maloney GMB National Officer
for GMB tied tenants said "This analysis of the Punch
published accounts leads GMB to conclude that Chief Executive Ian
Dyson needs to follow the example of
MGMand begin discussions with
the bondholders to convert debts to equity.
I can not honestly say
that I understand all the intricacies of the accounts but I do
understand the mountains of debt and amount of red ink in a company
set up by debt junkies. The debts average £534,901 per pub and
interest payment and the costs of insuring the loans amounts
to £271 per day per pub and is payable whether the pub is trading
at a profit or not.
These are trying times in
the pub trade. It is essential that the interests of all the
stakeholders are aligned to enable the major players to come up
with an agreed strategy to stop the decline.
This can not happen if
most of the surplus income generated from trading is needed to pay
the bondholders. It is time to unwind the financial engineering
that has gone badly wrong.
GMB consider that it would
be much better if Punch shareholders owned a pub business rather
than owning a holding company which invests in and manages pub
securitizations.
For a thriving pub sector
we need pub companies charging open market rents to tenants who can
compete on price in buildings refurbished to a high standard and
where customer service and care is the top priority. That way there
will be a decent income for all the stakeholders.
Many of the Punch
bondholders are based in offshore tax havens and the securitised
structure is costing the
UKExchequer a lot of lost
taxes in these times of austerity. GMB sponsored Members of
Parliament will be asked to take an active interest to establish
the scale of the tax losses. It is union policy that there should
be no tax relief on debt interest payable in leveraged vehicles.
"
End
Contact Paul Maloney GMB 07801 343
839 or Hayley Brennan 07850 919933
Notes: to Editors
1 Debt Service Cover Ratio is the
ratio of cash available to pay debt compared to the repayments that
are due.
2 Finance A is due for repayment
in 2033, Finance B in 2035 and Spirit in 2033.
3 The debt fully repays over terms
extending to 25 years and is effectively at a fixed rate of
interest of 6.8%