The U.K. pub sector faces further constraints as turnover and profit margins are expected to drive the declining industry trend. Market analysts said it is likely that whole business deals tied to this sector will see performance suffer as a result.
The deteriorating economic outlook, harsh pub trading environment and declining financial performance have contributed to negative rating actions.
Fitch Ratings said that it will take a number of negative rating actions with regard to nine U.K. pub securitizations following an updated assessment of the sector.
Among these deals was Globe Pub Issuer Plc. Last month the U.K. pub operator Globe Pub Co., controlled by property entrepreneur Robert Tchenguiz, said it would breach its securitization covenants because trading at its 424 pubs in the last two quarters had slowed to a level that brought its Ebitda to just 1.08 times its debt servicing costs. This falls bellow the default covenant level of 1.25.
Fitch downgraded the Globe Pub Issuer £192.2 million ($280 million) class A1 of secured fixed-/floating-rate notes due 2033 to 'BB' from 'BBB-', and it remains on Rating Watch Negative (RWN). Additionally, £57 million class B1 secured floating-rate notes (due 2036) downgraded to 'B' from 'BB-'.
Slowdowns in the sector have also prompted the rating agency to downgrade six classes of fixed- and floating-rate notes of Marston's Issuer securitization, which were also placed on RWN.
Spirit Issuer also had four fixed- and floating-rate classes downgraded to double-B-minus from triple-B. A fifth class was placed on RWN.
Unique Pub Finance had five classes downgraded to single-A-minus from single-A or double-B or triple-B-plus to single-A-minus or plain triple-B.
Fitch also placed eight classes of floating-rate notes of Greene King Finance, rated from single-A to triple-B, on RWN. Mitchells & Butlers Finance and Punch Taverns Finance also saw extensive re-categorizations from stable outlooks to negative. Two classes of fixed-rate notes from Wellington Pub Co. due in 2029 were placed on RWN.
Moody's Investors Service has also placed on review for possible downgrade Punch Taverns Finance B Ltd. and said its action was prompted by concerns over the issuer's ability to generate sufficient cash flow over the medium-term from its pub portfolio relative to the current outstanding total debt in the transaction. This is evidenced by the declining annual Ebitda and free cash flow trend on the securitized portfolio and decreasing profit margins on the estate.
Fitch said there remains a strong possibility of additional declines in the free cash flow generation of individual transactions, which would lead to additional negative rating actions in the short- to medium-term.
New figures reported by the British Beer and Pub Association (BBPA) do little to provide comfort, showing a substantial 3.2% fall in U.K. alcohol consumption in 2008.
Beer sales fell 8% in the final quarter of 2008, and the sector is currently reporting 39 pub closures per week. "The current economic downturn is undoubtedly having a depressive effect on consumption," said Mark Hastings, BBPA director of communications.
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