Enterprise Inns Share Discussion Threads

[the_doctor] 22/11/2011 14:11

really?

So - any idea about what issues there are with this, or what barriers there might be to implementing it?

[scburbs] 22/11/2011 13:48

They work in an illusory mannner, i.e. ETI put cash into the securitisation via procurement fees and take it out via management fees.

They have no impact on group cashflow they just impact on the cashflow within the securitisation.

[the_doctor] 22/11/2011 13:41

'perceived covenant risk' is exactly what I've been on about in the past
It's only now that ETI highlights it that some here actually start to grasp the problem

having potential solutions is not the same as having a GOOD plan

Other than unlikely hopes such as growing earnings to get out of it, the plan seems to rest on 'the management/procurement fees'
Does anyone know how these work in terms of bringing annual cash inflows above mandatory outflows?

[scburbs] 22/11/2011 13:14

Not sure why they are talking about a perceived covenant risk. It looks pretty real to me in 2014.

Whilst the presentation offers some solutions, these are tinkering around the edges (which hopefully will be all that is needed) and include some counterintuitive solutions like buying more pubs and putting more cash in!

Stabilise and then grow income is of course the best lever, but easier said than done.

The more pertinent observation is that there is no trapped cash from 2014 as the cashflow as the debt repayments (on 2011 cashflow) are pretty much the same! The example solution slide would actually be pushing cash into the structure in order to meet the covenant! Is the covenant test only done on 1 day a year (i.e. you put more cash in for one day and then take it out)?

Is the Unique securitisation DSCR a cash trap covenant only or would a breach be more serious? If it is the former then less of an issue as no cash surplus (without income improvement) anyway from 2014.

[the_doctor] 22/11/2011 12:20

I forgot to watch the webcast, but glad you did.

'Once the amortisation schedule kicks in, it doesn't matter whether they use revenue or asset disposals to meet the payments as these are repayments of capital'

asset disposals would impact revenue going forwards etc


'The worry would be if they were selling assets to pay the interest (revenue) but that ain't happening.'

I still dont get why you're separating interest and the amortisation payments?
Until debt is restructured, BOTH require cash and both are mandatory

As per the slides, unless they can implement one of their options, the interest PLUS amortisation will be greater than cash flows
This is precisely what I've said all along. I'm glad the company recognises this concern

so, we have now accepted that's a concern....
which takes us to 'how viable are the options', as per earlier post

'I dont understand the management/procurement fees referred to to be honest, so have no idea how viable those solutions to the shortfall problem are'

[jeffian] 22/11/2011 11:53

doc,

"p19 highlights EXACTLY my fear"

Look at the heading on p19 - they wrote it just for you!

"Debt service cover ratio (DSCR) - the perceived covenant risk"

Having highlighted "the perceived risk", they spend the next few pages explaining how they could deal with it.

You and I had a discussion/disagreement last time this subject cropped up about the difference between revenue/capital and the same applies. Once the amortisation schedule kicks in, it doesn't matter whether they use revenue or asset disposals to meet the payments as these are repayments of capital. The worry would be if they were selling assets to pay the interest (revenue) but that ain't happening.

I've just been watching the live broadcast of analysts' presentation and the message is that they recognise the things that are spooking the market (potential cash traps within the securitisation, the risk of bank refinancing in 2013 etc.) and have several options to deal with each.

[the_doctor] 22/11/2011 11:20

'this will fly when the divi is announced.'

after 2012 they'll instead have to start paying £70m per year for the debt amortisation
little chance of a divi IMO

[the_doctor] 22/11/2011 10:56

Thanks jeffian

p19 highlights EXACTLY my fear - that when the repayments kick in from 2013, ETI wont be able to cover them with cash flows
They'll be forced to use asset sales just to cover the MANDATORY debt payments

I dont understand the management/procurement fees referred to to be honest, so have no idea how viable those solutions to the shortfall problem are

Is the p21 plan still looking ok!??

p23 - Net debt:EBITDA has got squeezed closer from last time (ie. Mar 2011 not the 2010 fig). That's a worrying trend...
EBITDA is down nearly 10% in a year
that said, so is net debt though, and the former is linked to the latter


p37 is great though

and 'Free cash flow pre investment' is pretty good still

I've been on the verge of doubling down here at 29p
I didnt believe the profit warning talk, so figured it could be a time to buy

Markets may well drag this down further though...

[jeffian] 22/11/2011 10:24

"Anyone able to explain this amortisation in more detail?"




Pages 19-23 apply.

[the_doctor] 22/11/2011 07:32

'The £1,436 million of securitised bonds amortise over 20 years and attract an average fixed rate of interest of 6.3% until final maturity. The Group is currently £74 million ahead of the amortisation schedule and we expect to continue to make repayments of the floating rate notes in advance until they are repaid in full by 30 September 2012. Amortisation of the fixed rate securitised notes is scheduled to commence from September 2013. We are considering mechanisms by which we may be able to avoid excess cash being trapped in the securitisation from that time. '

Anyone able to explain this amortisation in more detail?
My understanding is that it's a repayment schedule

What I'm trying to work out is that if that 'commences' from Sept 2013, the company's 'interest' payments will jump up dramatically, pushing them into a cash flow negative situation
Any thoughts?






The crooks that spread this should be put away!

Last updated at 10:09 AM on 29th October 2011

Their boozers across the country may have seen more pints pulled of late as Joe Public celebrated the long-awaited European Union debt deal, but shares of Britain's biggest pub landlord remain as flat as a pint of home-made scrumpy.

Enterprise Inns lost 1.25p or 4 per cent more to 29.25p on worrying industry gossip that a profit warning could be on the cards and may even be rolled out before full-year results on November 22. Dealers have feared the worst since Spirit Pub company (0.5p dearer at 48.50p) reported deteriorating trading conditions recentl

Read more:

[cerrito] 18/11/2011 15:18

Doing my weekly check on my bond prices on the LSE retail bond board saw the 18's were trading at 73.5/74 a tighter spread than normal and indeed that 5 deals had been done so far today, which must be a record.

[the_doctor] 31/10/2011 18:26

'Securitisation and corporate bonds represent
fixed rate, manageable and tax efficient debt
The £1,466 million of securitised bonds amortise over 20 years, attract
a fixed interest rate of 6.3% and are secured on pub assets with a
net book value of £2,246 million. The Group is currently £77 million
ahead of the amortisation schedule and we expect to make advance
repayments of the floating rate securitised bonds until they are fully
repaid by 2012. There will then be a one year repayment holiday until
repayment of fixed rate securitised debt commences in 2013'

how will ETI cope with the amortisation payments from 2013?
any views?



'Net debt:EBITDA covenant = 6.50x, Mar 2011 = 5.75'

This IMO is the biggest risk
13% drop in EBITDA could push them over that bank covenant
It wouldnt take much of a drop in sales to cause that
BUT, I think they'll be ok for a good while on that still

[the_doctor] 31/10/2011 18:09

I guess the question becomes:

- how much is priced in?
- at what point does it look like ETI is doomed
- is there anything else that management can do?

[the_doctor] 31/10/2011 18:01

Does this

">Oct 29, 2011 (Daily Mail - McClatchy-Tribune Information Services via COMTEX)
Their boozers across the country may have seen more pints pulled of late as Joe Public celebrated the long-awaited European Union debt deal, but shares of Britain's biggest pub landlord remain as flat as a pint of home-made scrumpy. Enterprise Inns lost 1.25p or 4pc more to 29.25p on worrying industry gossip that a profit warning could be on the cards and may even be rolled out before full-year results on November 22. Dealers have feared the worst since Spirit Pub company (0.5p dearer at 48.50p) reported deteriorating trading conditions recently"

Fit with this

[the_doctor] 25/10/2011 18:46

Blackrock might have done better if they'd actually let the downtrend break

[cerrito] 25/10/2011 18:41

An explanation for the continuing weakness is today's announcement by Blackrock that between 6.10 and 24.10 their holding went down from 40.4m to 35.5m shares-or 7.03% holding- and noone seems to be picking up the slack.
Note that at 15.11.10-ie almost a year ago-Blackrock had 76.4m shares and by 17.6.11 this had fallen to 48.9m

[scburbs] 07/10/2011 16:21

An excellent day so far, glad I added a few at 27-28p. I am sure it will get back to normal next week!

[the_doctor] 07/10/2011 10:13

.... and I'd probably be closing at breakeven

this always falls back at this level these days!

[the_doctor] 07/10/2011 09:20

My aim was to double up at 25p, leaving me with breakeven at 35p
missed it though

that said.... every other hypothetical buy target I've had before has been met and then exceeded, so perhaps I'll be doubling nearer 20p instead!?

[jeffian] 06/10/2011 13:46

zhenlinyoung,
But there are negatives, too. The market is totally fixated on debt, which I believe isn't nearly such a problem as they think it is. On the other hand, the pubco's face a very real threat to their business model as campaigners have convinced the politicians that there is a problem with the 'tie' and the whole basis on which pubco's negotiate their rents with their tenants. Legislation to outlaw the 'tie' would probably kill the pubco's at a stroke.

[zhenlinyoung] 06/10/2011 13:37

Jeffians,
I totally agree with you..
I agree with your last comment re: QE. It looks as if HMG and the BoE are quietly trying to inflate their debts away without actually saying so to spook the markets. If so, what's good enough for the UK is good enough for ETI!

there are just so many positives about the present strategy of ETI for the longer term.

[jeffian] 06/10/2011 13:12

scburbs,

"You may think we have covered the point, but clearly we did not finish in agreement!"

There wasn't anything to agree/disagree about. Whatever you and I may think about the benefits of buying back bonds at a discount, the fact, as I reported back from the AGM, discussions with Ted Tuppen, and from listening to the analysts' presentation, is that all surplus cash from both revenues and pub sales was applied firstly to bringing down total bank debt and more recently towards paying off 'Tranche B' debt. I'm sure Tuppen would dearly have loved to pay off 6.5% debt at 40p in the £ (as it was some time ago) rather than 3%-odd debt at £1/£1 but that's what he had to do. Going forward, I'm sure you are right but his focus will always be firstly on the banks (next rollover due 2013) and their stated disposal programme is already largely committed in that direction. You may say 'so sell more pubs then', but there is a limit to how many you can sell without flooding the market and undermining prices further.

I agree with your last comment re: QE. It looks as if HMG and the BoE are quietly trying to inflate their debts away without actually saying so to spook the markets. If so, what's good enough for the UK is good enough for ETI!

[scburbs] 06/10/2011 12:08

Even if they don't follow my advice at least the BoE is going to do their best to sustain asset values with another £75bn due off the presses.

"The Bank of England has said it will inject a further £75bn into the economy through quantitative easing (QE)."