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Punch Under Pressure To Cut £3Bn Debt

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http://www.guardian.co.uk/business/2010/oct/12/punch-taverns-under-pressure-debt

Ian Dyson, the new chief executive of pub landlord Punch Taverns, is facing pressure to go to war with bondholders to cut the group's £3bn debts.

Today, the company revealed it had plunged £160m into the red for the year to 21 August, and several analysts called on Dyson – currently undertaking a strategic review of the business – to consider the radical option of walking away from troublesome trading operations which struggle to service their debts.

The demands for drastic action came after Punch revealed it had used cash reserves, held at group level, to top up shrinking profits at one of its three trading operations, known as Punch B. More than £20m was ploughed into rent concessions and beer supply discounts for struggling publicans in order to avert a bond crisis. Without this support, earnings at Punch B had sunk below a minimum covenant level required under a complex securitised bond agreement.

Analysts at Liberum Capital said: "The main decision seems to rest on the extent to which the company should continue to support the tenanted securitisations – especially Punch B – or whether this is ultimately a case of throwing good money after bad." Their counterparts at Cazenove urged Dyson to "consider more drastic measures to protect value in Punch's businesses, possibly at the cost of allowing certain securitised vehicles to fail".

Hundreds of pub sales and a £375m rights issue have helped reduce Punch's net debt by 30% in two years, but borrowings still stand at £3.1bn – more than five times the group's share value.

Asked whether he had ruled out radical options in his strategic review, Dyson said: "This is just the beginning of my sixth week so we're clearly at the very early stages. Nothing has been ruled in, nothing has been ruled out." The appointment of the former M&S finance director to run the pub group with a market value of less than £600m surprised many when it was announced in May.

Punch has already said it expects the cost of keeping Punch A and Punch B from breaching lending covenants to rise to £45m for the current financial year, compared with £30m over the 12 months to 21 August.

Finance director Phil Dutton insisted the group's debt was now at a manageable level, but he appeared to hint that tough talks with bondholders remained an option: "When we raised equity a year ago one of the reasons was to make sure the capital structure could be defended and protected through the economic cycle and that's what we're doing. We are in a lot stronger position in that sense – but there are still options which we will have to work through and think through."

Dutton was speaking after the group revealed comparable revenue at its tenanted pubs had fallen 6.8% despite the disposal of almost 900 sites – 13% of the pubs in the leased division. About 11% of Punch's remaining estate is boarded up or trading on a temporary basis.

Perhaps if they had run a pub business rather than a property empire which sold beer on the side they might have avoided all this debt.

Still I'm sure they can afford all this debt, it's not like debts are stupid multiples of losses is it?

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People harp on about the smoking ban ruining the pub trade

What a load of tosh!

Its the likes of Punch and Enterprise building empires with funny money and pushing beer prices up by buying cheap from breweries and selling at ridiculous prices to licensees that has ruined the pub trade.

Without this scum beer would be less than £2 a pint and landlords could make a go of it.

I hope they rot.

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People harp on about the smoking ban ruining the pub trade

What a load of tosh!

Its the likes of Punch and Enterprise building empires with funny money and pushing beer prices up by buying cheap from breweries and selling at ridiculous prices to licensees that has ruined the pub trade.

Without this scum beer would be less than £2 a pint and landlords could make a go of it.

I hope they rot.

There is a scondary business in the Pub trade set up to take responsibility off the big companies (Punch, Weatherspoons etc) for failing Pubs. The model was quite good. The big boys pay the management company a fee of 95% of previous years loss to take over failing pub and therefore caping their losses. The Management company then put in better quality management to reduce losses and pocket the difference.

This model was working fine for about 3/4 years until the last 12 months. Now the big boys are reducing how much of the current losses (say 50%) they will cover. The management companies can now not make money but run losses on over 50% of their pub estate and have high overheads. Net result is that these companies are now folding and the pubs are going back to the big boys who have no idea how to run them. They then shut up, go to auction and get sold for peanuts. Net result is the Balance sheets of the big Companies are under huge pressure.

It is a vicious circle from which there is no escape.

Short term management decisions at high levels back fire on the country as a whole!

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People harp on about the smoking ban ruining the pub trade

What a load of tosh!

Its the likes of Punch and Enterprise building empires with funny money and pushing beer prices up by buying cheap from breweries and selling at ridiculous prices to licensees that has ruined the pub trade.

Without this scum beer would be less than £2 a pint and landlords could make a go of it.

I hope they rot.

Lord Young ruined the British pub as we all knew and loved back in the eightys with the Beer Orders Act

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Its the likes of Punch and Enterprise building empires with funny money and pushing beer prices up by buying cheap from breweries and selling at ridiculous prices to licensees that has ruined the pub trade.

Without this scum beer would be less than £2 a pint and landlords could make a go of it.

I hope they rot.

Thx OP, good link. Agree with both. Well-run pubs with little or sensible debt are doing OK. I admire Wetherspoons, and they've had no-smoking areas since whenever.And tehy do ~£2 pints...

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Time for someone to post a pub for sale/auction site again?

A 25% fall in residential property prices over the next year (I see no reason why not!) would take 40% off of pub prices and knock out Punch...!

Edited by council dweller

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[Perhaps if they had run a pub business rather than a property empire which sold beer on the side they might have avoided all this debt.

Still I'm sure they can afford all this debt, it's not like debts are stupid multiples of losses is it?

I LOVE to see well run business thriving at the expense of badly-run. :D Well done Wetherspoons, ha ha Punch.

It's a pity that when they get really big the f*ckwits in government intervene and stop the important process of improvement that is "losers go bust".

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I LOVE to see well run business thriving at the expense of badly-run. :D Well done Wetherspoons, ha ha Punch.

It's a pity that when they get really big the f*ckwits in government intervene and stop the important process of improvement that is "losers go bust".

As much as I like to see Punch failing the downside is that it also screws the pubs they own, and some of them are decent enough (but would be much better if they were free houses).

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Perhaps if they had run a pub business rather than a property empire which sold beer on the side they might have avoided all this debt.

+Googolplex

Punch strategy: Force landlord out, board up pub, sell to property developers for flats. Repeat x 10,000

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Yep, Punch (and Enterprise) do rather seem to represent the worst side of corporatism in pubs. As for the shares, it's just possible they're now so bombed out as to represent good value, but I'm not buying!

I do, however, have a few squid in a fund that is helping pub landlords take advantage of Punch's distress. Specifically, when an opportunity arises to buy out a pub at a distressed price, the fund helps finance the deal. The investment case is that many of these landlords will make a successful business of operating a newly-free house.

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People harp on about the smoking ban ruining the pub trade

What a load of tosh!

Its the likes of Punch and Enterprise building empires with funny money and pushing beer prices up by buying cheap from breweries and selling at ridiculous prices to licensees that has ruined the pub trade.

Without this scum beer would be less than £2 a pint and landlords could make a go of it.

I hope they rot.

Is it this simple, though? All over the country at the moment, there are nice pubs being sold (freehold, so no rip-off leases, buy your beer where you want, no rent rise adter 5 years etc etc).

Look on here, select your area and search away. Very nice pubs for grabs all over the place.

Paramount Investments

You could BUY a decent pub, with a low-ish LTV mortgage, for quite a reasonable price. And you usually get decent living accommodation and sometimes outbuildings, or letting/staff bedrooms, as a bonus.

If you did this now, could you make a living selling pints for £2 a go? Really? With the smoking ban, endless regulations, taxes, etc....

I don't know, does anyone have a better idea? What does a barrel of brand-name lager cost to a free house pub? What's the gross profit on a pint?

Edited by kingsgate

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  • 145 Brexit, House prices and Summer 2020

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      • down 5% +
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