Friday, 1 May 2009

Punch Drunk


Worried about your pub? Well if it is owned by Punch Taverns, maybe you ought to be. The Punch Group owes its bankers £4.6 billion pounds, secured against its estate of 8,300 pubs. Now when it gets to huge amounts of zeros, I get a bit confused, but it seems to me that is an average debt of £554,000 per pub. No wonder they are screwing their publicans and selling pubs as fast as they can. Not that it will do them any good. As the London Evening Standard remarked the other day "The group has bought back £318 million of debt for a bargain £200 million in the past six months. At 60p in the pound, that either shows investors think the company is doomed, or that they are so strapped for cash they are happy to take what they can get."

How did all this arise I hear you ask, when at the beer orders, most pubs were owned by brewers and more or less debt free? Well, when the pub companies were set up, each pub was mortgaged to pay the breweries for the pubs they had to divest. When pub companies subsequently merged or were taken over, a little bit more was added to the mortgage, with the surplus being trousered by those that sold them. Repeat quite a few times, until we get where we are today. A massive bloody debt that is being paid by the PubCos tenants - and, of course, by their customers. This couldn't go on for ever. Something would happen to stop it. Well a few things have. All at once. They are running out of mugs to take their leases, people aren't visiting pubs and the estate isn't worth what it used to be.

If Punch goes bust, there will be a fire sale of pubs at realistic prices. These pubs then, unburdened by huge debt, might just start to make money again.

The market says the group is worth £237 million. Latest figures indicate they "only" own 7371 pubs, so the debt per pub is actually worse.

7 comments:

The Southport drinker said...

Not many took up this theme when I posted about it in March

http://southportbooze.wordpress.com/2009/03/27/punch-could-go-bust/

But there's real hope that a load of free houses could come onto the market. With buy-to-let etc a busted flush, now there just needs to be a mobilisation to stop them being changed into hated Tescos.

Paul Bailey said...
This comment has been removed by the author.
Curmudgeon said...

The worry about a "fire sale", of course, is that in the current climate many pubs might end up being sold "for alternative use" :-(

Woolpack Dave said...

"Alternative use" if made part of a covenant is despicable.

But thank you Tandleman. £1/2 million debt per pub, I'm doing better than that!

Tandleman said...

C - maybe some might, but I doubt if there would be covenants in such a scenario

Paul Bailey said...

I removed my original post after speaking to a couple of Punch licensees. I'm not trying to make apologies for Punch, but it appears they're not as bad as one other major PubCo, who shall remain anonymous.

If Punch do offer first refusal to their current sitting tenants, let's hope it's on favourable terms. That way we may see some new and really genuine free-houses appearing on the scene.

Tandleman said...

With the debt they have, the favourable terms is the tricky bit. They are bad for the industry I fear, simply due to that, without taking other things into account.