Moody's Investors Service said that the future performance of EMEA CMBS pub securitizations will depend on the successful repositioning of pub portfolios to increase free cash flow generation.

Transaction de-leveraging through pub disposals and debt repurchases will increase issuers’ ability to meet their financial covenants. Rating agency analysts said that the U.K.’s two largest pub operators, Enterprise Inns and Punch Taverns, recently announced plans to dispose of hundreds of non-core pub assets.

"U.K. pub companies have grown quickly in recent years, funded largely by debt," analysts said. "Currently, the owners of highly leveraged pub portfolios are focusing on disposing non-core and underperforming pubs and using sale proceeds to increase free cash flows and reduce overall debt."

The worse-than-expected pub performance has resulted in some recent negative rating actions on Moody’s-rated CMBS transactions in the sector, as well as a downgrade of the corporate family and senior secured notes of Enterprise Inns.

All five Moody’s-rated deals reported declining performance trends since 2008. Moody's analysts said that the eventual level of decline will be depend on the relative quality of the underlying portfolio and the extent to which the operators adapt their portfolios to changing market conditions.

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