Heineken wants more than profit from Globe Pub

LONDON Thu Jun 4, 2009 8:45am EDT

Bottles of Heineken beer are displayed for sale at an off-licence store in central London January 24, 2008. REUTERS/Toby Melville

Bottles of Heineken beer are displayed for sale at an off-licence store in central London January 24, 2008.

Credit: Reuters/Toby Melville

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LONDON (Reuters) - Heineken NV (HEIN.AS), best known for its range of fizzy beers, might soon also gain a reputation for financial wizardry.

Applying a cutting edge "loan to own" strategy, the Dutch brewer has taken a big stake in the debt of Britain's Globe Pub Co, giving it pole position in any future restructuring of the owner of a 425-strong chain across Britain.

Mopping up debt to wrest control of firms in a strategy hinging on debt-for-equity swaps -- a tactic also at the heart of a battle for control of struggling roofing business Monier -- is becoming increasingly popular as debt prices fall.

"The typical parameters for these investors is to look to flip the assets in two or three years and ... doubling their money. If they can catch it at the bottom of the cycle they can do well in a relatively short timeframe," said Karl Clowry, a partner at law firm Paul Hastings.

Recovering from big hits taken in the aftermath of Lehman Brother's collapse, distressed debt investors are preparing a clutch of "loan to own" deals, crafting strategies to eject the owners of a raft of companies.

Heineken owns 49 percent of the debt of Globe Pub, a struggling outpost of Robert Tchenguiz's property empire. The move came after the group breached covenants on its loans in April, throwing its future into doubt.

The opportunistic debt deals give Heineken a seat at the table in any restructuring and could position it to take control of the business, said one source close to the situation.

Heineken owns Globe Pub debt with a face value of 239 million pounds ($397 million), holding almost 86 percent of the A1 tranche of bonds. It has not disclosed the price it paid.

Heineken's debt purchases also prevent it from being forced to provide Globe Pub with free beer.

When Heineken bought the UK operations of Scottish & Newcastle in 2008, the brewer was locked into an unusual supply and management contract with Globe, in which it would be paid for beer only after payments to banks and bondholders.

Given Globe Pub's financial difficulties, this meant Heineken could have been forced by bondholders to provide Globe with free beer for more than 20 years, the source said.

However, Heineken's ambitions for Globe Pub are likely to range further than protecting a beer deal.

"One of the largest beer companies in the world doesn't care about supply contracts," said a second source close to the situation. "The restructuring is Heineken's agenda."

(Editing by David Holmes)

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