Punch Taverns Hit With Downgrades Ahead Of Strategy Review

Moody's Corp. (MCO) Thursday downgraded the investment rating on Punch Taverns' (PUB.LN) loan agreements, as the pub group prepares to set out the results of a strategic review later this month.

The credit rating agency lowered its expectations for Punch's cash flow relative to its debt, against which its leased estate is held in security. "Contrary to its analysis approximately one year ago, Moody's expects the portfolio Ebitda, excluding any support from the parent company, to decline further in 2011...and stabilize only during the course of 2012," it said in a statement.

Moody's filing comes just two days after Fitch Ratings also lowered its ratings on the group.

The downgrades raise concerns over Punch's creditworthiness as a bond issuer and make access to new funding more difficult, at least in the short term, even as it seeks to dramatically restructure its heavy debt load ahead of an internal review on March 22. Punch declined to comment on the downgrades or their implications.

Chief Executive Ian Dyson took on a "comprehensive review" of the group's operating performance, capital structure and strategy when he joined last September.

Punch, one of the U.K.'s largest pub groups, is under intense pressure from investors to cut its debt liabilities of more than GBP3 billion. That debt grew chiefly as a result of acquisitions made over three years ago--before the credit crisis set in--including the GBP2.7 billion purchase of Spirit Group.

Punch, which is also set to release a trading update March 10, announced fiscal-year losses of GBP160 million in October, hit by a GBP218 million writedown on the value of its pub estate, and said it had earmarked 1,300 leased pubs for sale to raise cash. Punch's leased division, Punch Partnerships, comprises the bulk of the company's estate with 5,967 pubs nationwide, while the managed division, Punch Pub Company, totals 803 pubs.

Its shares have plummeted more than 95% since May 2007 when they stood at a 10-year high of 1398 pence. At 1638 GMT Thursday, Punch Taverns shares were up 1.5%, or 1 penny, at 67 pence, valuing the company at GBP431 million.

By Simon Zekaria, Dow Jones Newswires; +44 207 842-9410; simon.zekaria@dowjones.com

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