It is looking increasingly likely that England will go the way of its neighboring U.K. countries and issue an outright ban on smoking in public places. How this might affect pub securitizations is still unclear, but Fitch Ratings analysts said that the full smoking ban in Scotland slated to take effect at the end of March should paint a clearer picture of what to expect.

The Health Bill issued in October last year proposed a partial ban on smoking in public places and also moved the date of introducing the ban forward to summer 2007 rather than the end of 2008. "By the end of last year, a Commons select committee had branded the proposal unfair and unworkable and have been working to get a full ban on smoking passed at the earlier date," said Paul Crawford, an analyst at Fitch last week during a teleconference on the sector. "We will have to wait and see how it pans out but the full smoking ban in Scotland - where a number of pub companies have transactions with exposure to Scotland - will no doubt be used as a learning experience to get up to date one how the ban might affect transactions with exposure in England."

The Health Bill is expected to enter the report stage and have its third reading in the Commons within the next two weeks. The government will allow a free vote among Labor MPs, most of whom appear to favor an amendment to remove the opt-out for pubs not serving food and private member clubs. The MPs will have three choices to choose from: an opt-out for food pubs and private member clubs, opt-out for private member clubs, and a blanket ban for all pubs and clubs. Health Secretary Patricia Hewitt is believed to back the second option.

According to the British Beer & Pub Association, over 20,000 private clubs are registered in England and Wales. "We see an outright ban as the better outcome for the pub industry as it would create a level playing field, should see a much more consistent effect on all pubs, and should not result in a loss of trade to private members' clubs," reported analysts at the Royal Bank of Scotland. "We feel that lower quality tenanted pubs would suffer most from such a compromise given they are more likely to be located close to clubs than managed outlets [and] their offering is not very different to that of a private members' club."

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

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