Securitised Punch Taverns bought by Patron/Heineken JV

Patron Capital and Dutch brewer Heineken have completed the purchase of the FTSE 100-listed Punch Taverns – the UK pub chain which is financed by circa £1.32 billion (€1.42 billion) of securitised debt.

A deal to buy the business was agreed by joint venture vehicle Vine Acquisitions in December, although it was held up while Heineken addressed concerns raised by the UK’s Competition and Markets Authority.

The deal, at 180p in cash per share, values the equity of Punch at around £402 million and implies an enterprise value of £1.8 billion. Patron’s participation in the deal is funded through capital from its recently closed fifth opportunistic real estate vehicle.

Punch is financed through two whole business securitisations: Punch A, which comprises £770 million of gross debt secured against around 1,900 pubs, and Punch B, which comprises £550 million of gross debt secured against around 1,300 pubs. Punch also owns approximately 50 pubs outside the securitisations.

Heineken has bought the Punch A securitisation in a back-to-back transaction for around £305 million equity value – an enterprise value of around £1.2 billion.

The Punch A debt dates to 1998 when the company’s founders raised capital through a whole business securitisation, with the second deal following in 2002. The firm’s debt was subject to a major restructuring in 2014, when a debt-for-equity swap was completed, following three years of negotiations by senior noteholders. The firm’s securitised debt pile was reduced from £2.2 billion to £1.6 billion.

As part of the deal to buy Punch, Patron will own the remaining pubs outside Heineken’s holding, as well as the Punch Holding Group. Punch will continue to operate the Punch A pubs for Heineken for six months under a transitional services agreement.

Patron’s partner for the transaction was May Capital, the London-based private equity investor and advisor which has a track record of buying assets in the pub and drinks industry.

The fifth opportunistic real estate vehicle to be raised by Patron closed in July after collecting around $949 million (€789 million) from a string of global investors. The firm, which is led by managing director Keith Breslauer, did not disclose its return target for the deal, however it has publicly stated that its average return over its 17-year history was around 15 percent.

Once the 3,200-strong portfolio of pubs had been acquired, Patron set up a joint venture with beer giant Heineken and immediately sold 1,900 assets to the Dutch company, retaining the remaining 1,300.

Patron and May said they would be enhancing the portfolio’s value by modernising the current pub stock and selling non-core assets. Punch is the second largest owner of pubs in the UK, behind market leader Greene King. Around 96 percent of its assets are held either on a freehold or a long leasehold basis.

Breslauer said Patron’s track record in turning around operating companies in recent years would be a major asset to Punch in the coming years.

“We are experienced investors in the leisure and hospitality sector, having invested in and grown a range of businesses. Under private ownership, with strong financial backing and our commitment to continued investment, Punch’s pubs and publicans will have our full support to deal with changing market dynamics and provide their customers with the best possible offer,” Breslauer added.