Douglas Jack – Punch has found a favourable restructuring solution: Numis leisure analyst Douglas Jack has issued a Buy note on Punch shares with a 15p price target after news of progress on its restructuring. He said: “Punch Taverns has announced the proposed restructuring solution for its securitised bonds. This should result in an immediate £137m reduction in net debt, without any issue of shares, and a £463m reduction in debt service payments over the next five years. It appears that debt restructuring will be achieved without issuing new shares or altering plans to invest £220m in the estate and sell 1,516 pubs for £435m over the next five years. It also reduces financial risk (new debt profile and covenants) and debt. We are raising our target price to 15p and and recommendation to Buy. We are upgrading our 2014E and 2015E PBT forecasts by 26% to reflect lower interest costs. The proposals are supported by large stakeholders, but approval needs 75% bondholder support. In Punch A, PLC financial support should cease; disposal restrictions should be lifted; bond maturity should increase by five years; reducing debt service by £255m over the next five years; and the DSCR and net worth covenants should be removed. However, the bond will remain permanently cash trapped, with disposal proceeds expected to pre-pay bond amortisation. In Punch B, the B1, B2 and C1 tranches (worth £286m) should be cancelled for a consideration of £149m (£56m PLC cash; £37m B cash; £56m of B3 notes). In addition: PLC financial support should cease; disposal restrictions should be lifted; bond maturity should increase; debt service should reduce by £208m over the next five years; and the DSCR covenant should be replace with a 1.1x cash interest cover (forecast: 1.4x).Punch should be allowed to upstream 25% of excess cash in Punch B to PLC in return for using £56m of PLC cash to de-leverage the bond. After the transaction completes, we expect there to be c.£15m of cash at PLC, c.£30m in Punch A and c.£25m in Punch B. The Matthew Clark Joint Venture should remain under PLC ownership.”