Toxic Pubs: Punch Taverns’ financial engineering has harmed the pub industry

January 24, 2014 Leave a comment

Punch Taverns’ financial engineering has harmed the pub industry
After 14 months of wrangling, Punch still couldn’t come up with an agreed deal with its bondholders
After 14 months of wrangling, and three sets of proposals for restructuring £2.3bn of securitised debt, pub landlord Punch Taverns still couldn’t come up with an agreed deal with its bondholders.
Instead, chairman Stephen Billingham produced a fourth proposal, declared the terms “final”, and told the various bondholders to vote.
If the answer is no among any one of 16 classes of bondholder, he says default and administration will follow.
Depending on your point of view, Billingham is either behaving recklessly in imposing a deadline, or is sensibly calling time on a process that has run for long enough.
Billingham’s gamble is justified. Clearly, he would be in a stronger position if he had been able to announce support from the two main groupings – the Association of British Insurers, representing the senior bondholders, and the hedge funds who dominate the junior varieties.
But, arguably, any attempt to secure a pre-agreement would simply generate yet another round of bickering.
The deep problem is that Punch’s capital structure – designed by over-confident, over-paid and long-departed financial engineers – is a complete mess.
Special clauses on access to the “liquidity facility” (don’t ask) apply on default. That gave the junior bondholders a hook on which to hang their claims for gentler treatment that would normally apply in a restructuring.
The seniors were understandably irate, especially as shareholders will avoid being wiped out entirely, which, by rights, they should be.
In the end, a vote seems a reasonable way to proceed if Billingham is convinced that it is now “economically rational” for all 16 classes to give approval.
If he’s right, Punch Taverns can limp on with a slightly lighter debt burden.
But this grotesque financial experiment, which has done only harm to the pub industry, should never be repeated.

Filed under Macro Trends

Unknown's avatarAbout bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a comment