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Mon 18th Aug 2014 - Punch Taverns launches restructure
Punch Taverns launches restructure: Punch Taverns has formally launched its debt restructure, which will see bondholders undertake a debt for equity swap and existing shareholders’ stake reduce to 15% of the new enlarged share capital. The company said the proposals have the support of a broad range of stakeholders that, in aggregate, own or control circa 65% of the notes across Punch A and Punch B and circa 54% of the equity share capital of Punch. These stakeholders comprise the ABI Special Committee together with a number of investment funds managed or advised by Alchemy Special Opportunities, Alchemy Special Opportunities (Guernsey), Avenue Europe International Management, Angelo, Gordon & Co, AG Funds, Bluecrest Capital Management (New York), Glenview Capital Management, Luxor Capital Group, Moore Capital Management, Oaktree Capital Management., Seer Capital Management Serengeti Asset Management, and Warwick Capital Partners. Ambac (the monoline insurer for the Punch A securitisation) has also agreed to support the proposals. Implementation of the proposals is conditional upon the approval of shareholders, all classes of noteholders in Punch A and Punch B and certain other securitisation creditors. In particular, the proposals will also require the support of The Royal Bank of Scotland (a liquidity facility provider to the Punch A and Punch B securitisations and provider of hedging arrangements to the Punch A securitisation), Lloyds Bank (a liquidity facility provider to the Punch A securitisation), Citibank, London Branch (the provider of hedging arrangements to the Punch B securitisation) and MBIA UK Insurance (the monoline insurer for the Punch B securitisation) each of whose approval is required to implement the proposals. Punch has had detailed discussions with these stakeholders over an extended period and will continue the process of securing their support for the proposals on the basis launched today. The company added: “The Group’s existing debt structure is unsustainable, with total net debt leverage of 10.8 times Ebitda. Leverage would be expected to increase following a default, absent a restructuring, and this would be expected to have material adverse consequences for all stakeholders and, in particular, for shareholders, given the various financial and contractual linkages between the securitisations and the rest of the Punch Group. The board believes that the proposals will create a more robust and sustainable debt structure for the Punch Group, with the reduction of total net debt (including the mark-to-market on interest rate swaps) by £0.6 billion, and the consolidated net debt to Ebitda leverage ratio of the Punch Group falling to circa 7.7x. Gross securitisation debt of £1,585 million at closing will have an initial effective interest rate of circa 7.8% including PIK interest (circa 7.1% cash pay interest). In consideration for the debt reduction, the debt-for-equity swap and firm placing contemplated by the proposals would result in significant equity dilution for existing shareholders, such that Punch’s currently issued share capital would represent 15% of its total enlarged issued share capital following the implementation of the proposals. The board has carefully considered, with its advisers, the proposals and the resulting significant equity dilution. It believes that it has considered all feasible alternatives to the Proposals and it has sought to minimise the level of equity dilution for shareholders. Given the broad level of stakeholder support for the Proposals, the absence of sufficient support for alternatives and the prospect of near-term default in the securitisations absent a restructuring, the Board believes that the Proposals are in the interests of all shareholders and deliver a materially better position than the alternative of a default. The Board is therefore unanimously recommending that shareholders vote in favour of resolutions approving the Proposals.” A general meeting will be convened for 17 September at which the requisite resolutions to approve the proposals will be put to shareholders. Punch is also issuing documents convening meetings of each class of noteholders in Punch A and Punch B for 17 September to approve the proposals. If all requisite shareholder, noteholder and other creditor approvals are obtained, the Proposals are expected to become effective, and dealings in the New Ordinary Shares are expected to commence, on 8 October 2014. Stephen Billingham, executive chairman of Punch Taverns, said: “Today we launch the Punch restructuring, reflecting agreement across multiple stakeholder groups. The Board believes that the restructuring will create a more robust balance sheet which will provide stability for the business, provide a firm base to allow Punch to build on recent improvements in trading and lead to further deleveraging. The benefits of approving the restructuring are clear and of benefit to all stakeholders. It is of critical importance that shareholders and noteholders vote in favour of the resolutions in order to implement the restructuring and avoid the adverse consequences for the Group of the restructuring not proceeding.”

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