RPT-Fitch downgrades Punch A & Punch B notes; maintains on RWN

Fri Feb 21, 2014 8:06am EST

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Feb 21 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has downgraded Punch Taverns Finance Plc's (Punch A) notes and Punch Taverns Finance B Ltd's (Punch B) class B and C notes. The notes remain on Rating Watch Negative (RWN) pending further announcements regarding the debt restructuring. A full list of rating actions is at the end of this release.

KEY RATING DRIVERS

The rating actions are driven by increased uncertainty, with a consensual debt restructuring becoming less likely. The anticipated noteholder vote scheduled for 14 February 2014 did not take place and Punch Taverns Plc's (Punch Taverns) latest restructuring proposal has been withdrawn. Fitch understands that further negotiations will take place between involved stakeholders ahead of the next covenant reporting date of 15 April 2014. If no consensual restructuring solution can be found, Punch Taverns may withdraw its support for Punch A and/or Punch B, which would likely lead to a breach of financial covenants and eventually to a borrower event of default under the issuer/borrower facility agreements. Such a scenario could lead to increased operating costs for the borrower (currently not reflected in Fitch's free cash flow forecasts) as well as operational uncertainty impacting both Punch A and Punch B's revenues and cash flow.

Fitch's view of the underlying performance of the securitised estates has not changed compared with its last reviews in November 2013. Based on Punch Tavern's trading statements for the entire group's estate performance has been broadly in line with expectations in FY14 thus far with the core estate like-for-like net income up by 1.5% (year on year) in the 20 weeks to 4 January 2014. However, trading was somewhat assisted by weak weather comparatives.

The agency's base case free cash flow debt service coverage ratios (DSCR; minimum of both the average and median DSCRs to the notes' legal final maturity) for Punch A's class A, M, B, C and D notes remain around 1.3x, 1.1x, 0.85x, 0.8x and 0.8x, respectively and for Punch's B class A, B and C around 1.4x, 0.8x and 0.8x, respectively. Further asset disposals, potential debt prepayments or re-profiling could have a material impact on the assumptions and DSCRs.

RATING SENSITIVITIES

The transaction's ratings are currently on RWN due to the upcoming restructuring. The outcome of the debt restructuring could have an impact on the ratings. The ratings could also be adversely affected if Punch A or Punch B's performance falls materially short of Fitch's base case or if there was an early reduction/discontinuation of the parent support leading to a borrower event of default under the issuer/borrower facility agreements.

SUMMARY OF CREDIT

Punch A and Punch B are two whole business securitisations of 2,316 and 1,649 leased and tenanted pubs, respectively, located across the UK and owned by Punch Taverns Group.

The rating actions are as follows:

Punch A:

GBP270.0m class A1(R) fixed-rate notes due 2022: downgraded to 'BB' from 'BB+'; on RWN

GBP203.9m class A2(R) fixed-rate notes due 2020: downgraded to 'BB' from 'BB+'; on RWN

GBP102.1m class M1 fixed-rate notes due 2026: downgraded to 'B-' from 'B'; on RWN

GBP398.7m class M2(N) floating-rate notes due 2029: downgraded to 'B-' from 'B'; on RWN

GBP79.5m class B1 fixed-rate notes due 2026: downgraded to 'CC' from 'CCC'; on RWN GBP83.7m class B2 fixed-rate notes due 2029: : downgraded to 'CC' from 'CCC'; on RWN

GBP134m class B3 floating-rate notes due 2031: downgraded to 'CC' from 'CCC'; on RWN

GBP85.1m class C(R) fixed-rate notes due 2033: downgraded to 'CC' from 'CCC'; on RWN

GBP83.8m class D1 floating-rate notes 2032: downgraded to 'CC' from 'CCC'; on RWN

Punch B:

GBP158.9m Class A3 fixed-rate notes due 2022: 'B+'; maintained on RWN

GBP220.0m Class A6 fixed-rate notes due 2024: 'B+'; maintained on RWN

GBP158.9m Class A7 fixed-rate notes due 2033: 'B+'; maintained on RWN

GBP44.9m Class A8 floating-rate notes due 2033: 'B+'; maintained on RWN

GBP61.5m Class B1 fixed-rate notes due 2025: downgraded to 'CC' from 'CCC'; on RWN

GBP99.4m Class B2 fixed-rate notes due 2028: downgraded to 'CC' from 'CCC'; on RWN

GBP125.0m Class C1 floating-rate notes due 2035: downgraded to 'CC' from 'CCC'; on RWN

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