Shareholders in pubs group Punch Taverns could see their combined stake in the business cut to just 15% under a debt-for-equity swap, it emerged today.

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The heavily indebted group has been attempting to negotiate a financial restructuring with its creditors for more than a year, but in Feburary called off a vote on its previous proposals amid opposition from key stakeholders.

Now, in a significant change from its previous approach, Punch is offering some junior noteholders under both the Punch A and Punch B debt securitisations a combination of not only cash and new junior notes but also new ordinary shares in the company.

In addition, some junior creditors would be invited to subcribe for ordinary shares at a “significant discount” to the current market price, in order to raise additional funds to repay junior notes under the Punch A securitisation.

Punch said the proposals were supported in principle by creditors who own or control around 34% of the A and B securitisations and more than 50% of junior notes in both securitisations and the group’s equity share capital.

However, it cautioned that: “Implementation of a consensual restructuring would require the consent of other parties outside of the stakeholder group, including shareholders, all classes of noteholders in Punch A and Punch B and other securitisation creditors. Accordingly, there can be no certainty that the proposals will proceed.”

Punch added that the proposals would “result in significant equity dilution for existing shareholders” who would be left with just 15% of the enlarged issued share capital.

If approved, the proposal will reduce Punch’s total net debt by £600million, leaving gross securitised debt of £1.582billion.

Punch added that extensions would also have to be sought to the covenant waivers agreed by A and B noteholders earlier this month as it would not be possible to complete the restructuring process by the current waiver deadline of June 30.

Punch is Britain’s second biggest pub owner with around 4,000 leased and tenanted pubs, including a signficant estate in East Anglia where, due to past mergers and acquisitions, it owns a number of former Tolly Cobbold pubs.

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