Despite the widely documented challenges faced by the U.K. pub industry - such as declining beer consumption, an increasing cost base and the upcoming smoking ban -companies are adapting to their environment enough to maintain levels of profitability. As a result, Fitch Ratings has affirmed all tranches of the 10 U.K. pub securitizations that it rates.

Fitch said that pub companies have maintained profitability since the consolidation between operators has resulted in economies of scale on the supply side, the enhancement of food and wine sales to offset the volume decline in beer sales and value-enhancing capital expenditure programs combined with the disposals of underperforming outlets. According to Fitch, 5,600 pubs changed hands in 2005 for a total value of GBP4.6 billion ($8.7 billion). And 2006 has also seen a number of transactions ranging from piecemeal disposals to large-scale acquisitions.

Last week, Enterprise Inns, the tenanted pub operator and second largest pub company in the U.K., announced that it will dispose of 769 pubs to Admiral Taverns for GBP318 million. The proceeds will be used to repay borrowings in the short term. The pubs have 35% lower profitability within the Enterprise Inns estate and would potentially be more affected by the U.K smoking ban, market analysts said. Enterprise Inns has the securitization of the Unique Pub estate outstanding, as well as some secured debentures. Punch Taverns has also announced this month that it is selling its 31 pubs in the Old Orleans chain to Regent Inns for GBP26 million. Punch Taverns has two pub securitizations outstanding, Punch Taverns Finance and Punch Taverns Finance B, which comprises the Pubmaster estate. Spirit Group, which Punch acquired in January 2006, has also securitized.

Outside of disposals and acquisition, the pub securitization market has also remained active with GBP1.6 billion of new pub paper issued. Two new entrants have emerged with pub whole business securitizations - Wolverhampton & Dudley Breweries and Globe Pub Co. And existing transactions have also been subject to refinance or taps, such as Greene King Finance Plc, which was tapped only a year after initial issuance, and Pubmaster, which was restructured by Punch, and reissued as Punch Taverns Finance B.

Punch also bought both Avebury and Spirit and both transactions have been restructured.

But according to a report on the sector published by Standard & Poor's, securitization activity within the sector is likely to slow. Analysts at S&P said they did not expect to see any more pub securitizations this year, although analysts said one of the Punch Taverns deals could be restructured this year.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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