Marston's Issuer PLC COVID-19 CONSENT SOLICITATION (8939E)

TIDM48VL

RNS Number : 8939E

Marston's Issuer PLC

11 November 2020

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF THE MARKET ABUSE REGULATION (EU) 596/2014.

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO, OR TO ANY PERSON LOCATED OR RESIDENT IN, ANY JURISDICTION WHERE IT IS UNLAWFUL TO RELEASE, PUBLISH OR DISTRIBUTE THIS DOCUMENT. NOTHING IN THIS ANNOUNCEMENT CONSTITUTES OR CONTEMPLATES AN OFFER OF, AN OFFER TO PURCHASE OR THE SOLICITATION OF AN OFFER TO SELL SECURITIES IN THE UNITED STATES OR ANY OTHER JURISDICTION.

MARSTON'S ISSUER PLC ANNOUNCES COVID-19 CONSENT SOLICITATION

11 November 2020

Overview

Marston's Issuer PLC (the "Issuer") today announces a consent solicitation (the "Consent Solicitation") in respect of the GBP214,000,000 Class A2 Secured Fixed/Floating Rate Notes due 2027 (XS0226790748) (the "Class A2 Notes"), the GBP200,000,000 Class A3 Secured Fixed/Floating Rate Notes due 2032 (XS0226792280) (the "Class A3 Notes") and the GBP250,000,000 Class A4 Secured Floating Rate Notes due 2031 (XS0331071026) (the "Class A4 Notes", and together with the Class A2 Notes and the Class A3 Notes, the "Notes").

The Consent Solicitation is being launched in order to seek the approval of the holders of the Notes (the "Noteholders") (by way of Extraordinary Resolution at a single meeting of the Noteholders) to further waivers and a further amendment in respect of certain provisions in the financing to which the Issuer is a party, as described further below. Equivalent waivers and amendment were approved by Noteholders in May 2020 in connection with the first "lockdown". The need for these further waivers and amendment has arisen directly as a result of the second forced closure of pubs, restaurants and other hospitality venues in England for the period from 5 November 2020 until at least 2 December 2020 (the "Second Lockdown") by order of the UK Government as a result of the COVID-19 pandemic.

Capitalised terms used in this announcement (the "Announcement") and not defined herein shall have the meanings ascribed to them in the Consent Solicitation Memorandum dated 11 November 2020 (the "Solicitation Memorandum").

Rationale and Background to the Proposals

As Noteholders are aware, on 29 May 2020 the overwhelming majority of holders of the Notes approved an Extraordinary Resolution to implement, among other things, waivers and amendments to the Debt Service Covenant (and accompanying Loan Events of Default) in respect of the Financial Quarter Dates falling on 27 June 2020, 3 October 2020 and 2 January 2021. This was in response to the adverse impact on the performance of Marston's Pubs Limited (the "Borrower") and its parent, Marston's Pubs Parent Limited (together with the Borrower, the "Security Group"), of enforcement measures taken by the UK Government to shut down completely the operations of pubs and restaurants across the United Kingdom from 20 March to 4 July 2020 as a result of the COVID-19 pandemic.

As explained at the time, the waivers and amendments which were approved in May 2020 were considered by the Security Group to be the minimum amendments and waivers required to support the Transaction at that time, based on the assumption that pubs and restaurants would be forced to remain closed during some of the summer period but gradually reopen across the United Kingdom with social distancing measures in place. In particular, the waiver and amendment of the Debt Service Covenant were not sufficient to take account of a further "lockdown" in England to the extent of the Second Lockdown.

Noteholders will now be aware that, following a second set of strict "lockdowns" and enforced closures of non-essential retail and hospitality businesses imposed by the UK Government and devolved administrations, the wider Marston's group (the "Group") once again closed all of its pubs in Wales for a two week period prior to 9 November 2020 and in England for the period of the Second Lockdown, including those pubs in the Secured Estate.

Against this backdrop, the Security Group considers it prudent at this time to request (a) further waivers of the Debt Service Covenant (and related Loan Events of Default) for the Financial Quarter Dates falling in January and April 2021, and (b) an equivalent amendment as was approved at the meeting of Noteholders in May 2020 to the regime regulating disposals of mortgaged properties in order to ensure that the Security Group can manage the Portfolio effectively through to the end of the financial year ending on 1 October 2022 (together, the "Proposals"). The Proposals are based on a number of assumptions including that: (a) the vast majority of the pubs in the Secured Estate will be able to reopen and trade from the beginning of December (albeit subject to continued operational restrictions and social distancing measures); (b) the pubs in the Secured Estate will be fully open for the duration of the final two financial quarters of the financial year ending on 2 October 2021 (albeit subject to continued operational restrictions and social distancing measures); and (c) the performance of the pubs will remain robust (when permitted to be open) in spite of the UK Government's and devolved administrations' restrictions.

In summary, the waivers will support the Transaction through the impact of the Second Lockdown, the expected continuation of the tiered and other restrictions across the United Kingdom thereafter and possible further short "lockdowns" in England and Wales during the spring of 2021. Furthermore, the amendment will enable the Security Group to manage the Portfolio effectively through to the end of the financial year ending on 1 October 2022. The Issuer and the Borrower consider that the proposed waivers and amendment are prudent to avoid any potential default, to preserve the value of the Security Group, and to allow the Security Group the flexibility it requires over the coming months in the face of the continued uncertain approaches of the UK Government and devolved administrations to pub closures and operating restrictions.

The Issuer draws Noteholders' attention to the following key points (each of which is described in further detail in Solicitation Memorandum):

(i) Security Group's strong performance in the face of COVID-19: As mentioned above, after the first "lockdown" measures imposed by the UK Government were eased in July this year, the Group was able to successfully reopen approximately 99 per cent. of its pubs (including the 948 pubs in the Secured Estate, 870 of which are in England, with the balance in Wales) but under continued restrictions as was anticipated, including social distancing.

Despite these restrictions, like-for-like sales at the Group's managed and franchised pubs reached an average of 90 per cent. of the previous financial year during the 13-week period ending on 3 October 2020; during August, like-for-like sales increased by 6 per cent. in comparison to August 2019. The Group's pubs also saw an outperformance relative to the UK pub sector of approximately 7 per cent. (according to the CGA Peach Tracker). Notably for the Security Group the Debt Service Covenant ratios for the most recent Relevant Period and Relevant Year ending on 3 October 2020 were 1.01:1 and 1.09:1 respectively, based on the unaudited financial statements for the year ending 3 October 2020.

These results underline the Group's ability to manage and reopen its pubs (including the pubs in the Secured Estate) successfully in spite of the continued restrictions imposed on the hospitality sector by the UK Government and devolved administrations; they also illustrate the resilience of the Group's pubs and its business model more broadly when pubs and restaurants are allowed to open and trade.

Other than the Proposals, the Security Group can confirm that the other amendments and waivers approved by Noteholders in May 2020 continue to support the Transaction effectively and, based on various assumptions including those outlined above, it does not anticipate requiring extensions or changes to those other amendments and waivers at this time or needing to obtain further waivers or amendments from the Noteholders.

(ii) Sufficient liquidity ensures no loss to Noteholders: As Noteholders are aware, the Security Group utilised part of its Liquidity Facility as a direct result of the "lockdown" measures imposed in March 2020. At the time of the Noteholder meeting in May 2020, it had expected to borrow in the region of GBP18 million on 15 July 2020 to meet its quarterly debt service payment obligations on that date in full. However, cash generation was stronger than anticipated after the pubs in the Secured Estate were allowed to reopen in early July 2020, with the result that the Security Group only drew down GBP15 million under the Liquidity Facility. GBP5 million of this was repaid ahead of expectations on 15 October 2020, illustrating the Security Group's ability to generate strong cash flows even with restricted opening and suppressed trading conditions.

The Security Group currently expects the Issuer to be able to meet in full its quarterly debt service payment obligations under the Notes on 15 January 2021 and 15 April 2021 without having to increase borrowings under the Liquidity Facility, assuming the vast majority of the pubs in the Secured Estate will be able to reopen and trade from the beginning of December (albeit subject to continued operational restrictions and social distancing measures). The Security Group also expects to be able to repay the remaining GBP10 million borrowing under the Liquidity Facility in full on or before 15 October 2021, as previously indicated. Both these expectations depend, however, on the course of the COVID-19 pandemic and the UK Government's and devolved administrations' response to it over time. In any event, there remains GBP110 million of headroom under the Liquidity Facility.

Furthermore, as a result of the Second Lockdown, the Security Group anticipates that the Debt Service Covenant could be breached on the forthcoming Financial Quarter Dates falling on 2 January 2021 and 3 April 2021. Based on the current intentions expressed by the UK Government that pubs and restaurants in England will be forced to remain closed until 2 December 2020, and based on the assumption that once they are allowed to reopen and can operate from the beginning of December (albeit that there will continue to be tiered and other restrictions imposed which will affect the operation of pubs and restaurants across the United Kingdom), the Security Group anticipates that:

(a) its two Financial Quarter Debt Service covenant for the Relevant Periods ending on 2 January 2021 and 3 April 2021 will drop to around 1.27:1.00 and 1.01:1.00 respectively, and then return to above the required covenant level of 1.10:1.00 for the Relevant Period ending on 3 July 2021 and thereafter; and

(b) its four Financial Quarter Debt Service covenant for the Relevant Years ending on 2 January 2021 and 3 April 2021 will drop to around 0.95:1.00 and 1.01:1.00 respectively, and then return to above the required covenant level of 1.10:1.00 for the Relevant Year ending on 3 July 2021 and thereafter.

However, it is impossible to predict the impact of any further "lockdown" measures that might be imposed by the UK Government and devolved administrations throughout the winter period. There is no certainty that the Second Lockdown in England will come to an end on 2 December 2020 or that other measures will not be imposed which materially impact the Security Group's ability to trade. Therefore, as a precautionary measure the Security Group is requesting waivers of any breaches of the Financial Quarter Debt Service covenant (and the corresponding Loan Event of Default) arising on the Financial Quarter Dates falling on 2 January 2021 and 3 April 2021, in respect of both the most recent Relevant Periods and the most recent Relevant Years ending on such Financial Quarter Dates.

(iii) Mitigation actions: The Security Group continues to take steps to mitigate the impact of the restrictions imposed by the UK Government and devolved administrations. These measures include furloughing staff, use of the Job Retention Scheme, and minimising underlying operating and capital expenditure and central costs. Overall, the Security Group believes that it is continuing to take a very prudent approach in managing the business during this period of unprecedented uncertainty and is keeping the situation under continuous review.

If the Proposals are not approved, technical Loan Events of Default will occur. While the potential implications of a Loan Event of Default cannot be predicted with certainty, any default is likely to have a material negative impact for all stakeholders in the transaction over and above the impact of the Second Lockdown, given (i) the risk of significant ongoing disruption to the business of the Security Group, both during the period for which the Second Lockdown applies and the period after pubs and restaurants are allowed to reopen for which tiered and other restrictions will continue to apply across the United Kingdom, and the likely negative impact on the ability of the Security Group to maintain its value throughout such periods, and (ii) the potential administrative receivership costs. These factors would also be expected to have a negative impact on leverage and cash flows within the Security Group.

Proposals

For the reasons set out above, the Issuer is calling a meeting of Noteholders in order to seek the consent of Noteholders to implement the Proposals, the terms of which are set out in the Solicitation Memorandum. The Proposals require the approval of the Class A Noteholders and, if the Proposals are approved at the meeting, such approval will bind all Class A Noteholders and also the Class B Noteholders. The Proposals will be implemented by entry into of the Deed of Amendment and Waiver.

Meeting of Noteholders

A single meeting of holders of the Notes to consider, and if thought fit, pass the Extraordinary Resolution to approve the Proposals shall take place at 10.00 a.m. (London time) on 3 December 2020 in respect of the Notes. Noteholders are directed to the Notice of Meeting and the Solicitation Memorandum (information relating to which has been sent today to all Noteholders via the Clearing Systems) which contains the full terms of the Proposals and details of the Meeting.

In light of the ongoing COVID-19 pandemic, it is expected that it will be impossible or inadvisable to hold a physical Meeting. As a result, the Issuer and the Note Trustee will prescribe further or alternative regulations regarding the holding of the Meeting by audio or video conference call, and those Noteholders who have indicated that they wish to attend the Meeting will be provided with further details about attending the audio or video conference call.

Noteholders who do not wish to attend the Meeting but who wish to vote must take action on or prior to 10.00 a.m. (London time) on 1 December 2020 (the "Expiration Time"), subject to amendment, extension or termination by the Issuer and any earlier deadlines set by any intermediary through which such Noteholders hold their Notes.

Implementation

The implementation of the Proposals and the Extraordinary Resolution will be conditional on the passing of the Extraordinary Resolution and the execution of the Deed of Amendment and Waiver. The Deed of Amendment and Waiver will take effect from the date that such Deed of Amendment and Waiver is entered into or, if later, the date on which it becomes effective in accordance with its terms, and will (i) document the waivers requested and (ii) effect the amendments to the Issuer/Borrower Facility Agreement, which will together reflect the Proposals. Further detail on the Proposals is set out in the Solicitation Memorandum.

Early Instruction Fee

Subject to the conditions set out in the Solicitation Memorandum and the approval of the Extraordinary Resolution, the Issuer will pay or procure to be paid on the Payment Date to each Eligible Noteholder that has delivered a valid Electronic Voting Instruction in favour of or against the Extraordinary Resolution which has been received by the Information and Tabulation Agent at or prior to the Early Instruction Deadline, which has not been validly withdrawn at or prior to the Expiration Time and which remains in full force and effect until the conclusion of the Meeting, the Early Instruction Fee equal to 0.05 per cent. of the Principal Amount Outstanding of the Notes that are the subject of the relevant Electronic Voting Instruction. Any Early Instruction Fee shall be paid on the Payment Date via the relevant Clearing System for payment to the cash account of the relevant Direct Participant in such Clearing System for onward payment to the relevant Beneficial Owner (if applicable).

Eligible Noteholders will not be eligible to receive the Early Instruction Fee for Electronic Voting Instructions submitted after the Early Instruction Deadline or for Electronic Voting Instructions that do not vote in favour of or against the Extraordinary Resolution or if they seek to vote in respect of the Extraordinary Resolution in any other manner, whether or not they vote in favour of or against the Extraordinary Resolution.

Only Eligible Noteholders may deliver a valid Electronic Voting Instruction and, therefore, only Eligible Noteholders may receive the Early Instruction Fee.

 
            Expected Timetable Event                        Date 
Announcement of the Consent Solicitation                 11 November 2020 
 and the Proposals via the RNS. Notice 
 of Meeting given to Noteholders through 
 the Clearing Systems. 
Solicitation Memorandum and draft of the                 11 November 2020 
 form of the Deed of Amendment and Waiver 
 to be made available by the Information 
 and Tabulation Agent (copies of which 
 are obtainable by Noteholders upon request, 
 free of charge). 
Early Instruction Deadline : Latest time                4.00 p.m. (London 
 and date for receipt of Electronic Voting                          time) 
 Instructions through the Clearing Systems                 on 27 November 
 to be received by the Information and                               2020 
 Tabulation Agent for eligibility for payment 
 of the Early Instruction Fee. Such Electronic 
 Voting Instructions must be in favour 
 of or against the Extraordinary Resolution 
 in order for the relevant Noteholder to 
 be eligible for the Early Instruction 
 Fee. 
Expiration Time : Latest time and date                 10.00 a.m. (London 
 for (i) receipt by the Information and                             time) 
 Tabulation Agent of valid Electronic Voting           on 1 December 2020 
 Instructions through the Clearing Systems 
 (such Electronic Voting Instructions are 
 irrevocable from this date) and (ii) obtaining 
 a voting certificate from the Principal 
 Paying Agent and for the issuance or withdrawal 
 of a voting instruction whether given 
 by way of an Electronic Voting Instruction 
 or otherwise. 
Time and date of the Meeting in respect               Commencing at 10.00 
 of the Notes.                                         a.m. (London time) 
                                                       on 3 December 2020 
                                                        as set out in the 
                                                        Notice of Meeting 
Announcement of result of the Meeting               As soon as reasonably 
 via the RNS. Notice of result of the Meeting           practicable after 
 to be given to Noteholders through the                       the Meeting 
 Clearing Systems. 
If the Extraordinary Resolution is passed           As soon as reasonably 
 at the Meeting, execution of the Deed                  practicable after 
 of Amendment and Waiver.                                     the Meeting 

If the Consent Conditions are satisfied,                   Expected to be 
 payment of any Early Instruction Fee to                   on or about 10 
 relevant Eligible Noteholders (the "Payment               December 2020, 
 Date").                                                   being the date 
                                                       falling 5 Business 
                                                           Days after the 
                                                      date of the quorate 
                                                                  Meeting 
 

Noteholders or Beneficial Owners are advised to check with the bank, securities broker, Clearing System or other intermediary through which they hold their Notes whether such intermediary applies different deadlines for the receipt of Electronic Voting Instructions or (in the limited circumstances in which withdrawal is permitted) to the withdrawal of Electronic Voting Instructions to vote in respect of the Proposals, and then to adhere to such deadlines if such deadlines are prior to the deadlines set out above.

All of the above deadlines for the submission and (where permitted) revocation of Electronic Voting Instructions are subject to earlier deadlines that may be set by the Clearing Systems or any intermediary.

General

The Issuer may, at its option and in its sole discretion, amend, terminate or waive any of the terms and conditions relating to the Consent Solicitation at any time (subject in each case to applicable law and the Noteholder Meeting Provisions and as provided in the Solicitation Memorandum, and provided that no amendment may be made to the Extraordinary Resolution or the Expiration Time).

In relation to the delivery or withdrawal of Electronic Voting Instructions, in each case, through the Clearing Systems, Noteholders holding Notes in Euroclear or Clearstream, Luxembourg should note the particular practice of the relevant Clearing System, including any earlier deadlines set by such Clearing System or any intermediary.

Only Noteholders who are shown on the records of a Clearing System as a holder of the Notes (each a "Direct Participant") may deliver Electronic Voting Instructions. Noteholders who are not Direct Participants in Euroclear or Clearstream, Luxembourg should arrange for the Direct Participants through whom they hold their Notes to deliver an Electronic Voting Instruction on their behalf to the relevant Clearing System as more particularly described under "Procedures in connection with the Consent Solicitation - Procedure for Delivering Electronic Voting Instructions" in the Solicitation Memorandum.

Noteholders are advised to read carefully the Solicitation Memorandum for full details of and information on the procedures for participating in the Consent Solicitation.

A complete description of the terms and conditions of the Consent Solicitation is set out in the Solicitation Memorandum.

For Further Information:

Further details on the Consent Solicitation and copies of the Solicitation Memorandum can be obtained from:

The Information and Tabulation Agent

D.F. King Ltd.

65 Gresham Street

London EC2V 7NQ

United Kingdom

   Tel:                                      [phone] 
   Email:                                    [e-mail] 
   Website:                                https://sites.dfkingltd.com/marstons 

Further details relating to the contents of this Announcement can be obtained from:

Marston's Pubs Parent Limited

Marston's House

Brewery Road

Wolverhampton WV1 4JT

United Kingdom

Attention: Rob Leach

Solicitation Restrictions

This Announcement does not constitute an invitation to participate in the Consent Solicitation in any jurisdiction in which, or to any person to whom, it is unlawful to make such invitation or for there to be such participation under applicable securities laws. The distribution of this Announcement in certain jurisdictions may be restricted by law.

Persons into whose possession this Announcement comes are required by each of the Issuer, the Borrower, the Group, the Information and Tabulation Agent, the Trustee and the Principal Paying Agent to inform themselves about, and to observe, any such restrictions.

United States

This Announcement is not an offer of securities for sale in the United States or to, or for the account or benefit of, any U.S. person. Securities may not be offered or sold in the United States absent registration or an exemption from registration. The Notes have not been and will not be registered under the Securities Act, or the laws of any state or other jurisdiction of the United States, and may not be offered or sold in the United States or to, or for the account or benefit of, U.S. persons, unless an exemption from the registration requirements of the Securities Act is available.

General

Nothing in this Announcement constitutes or contemplates an offer of, an offer to purchase or the solicitation of an offer to sell any security in any jurisdiction and participation in the Consent Solicitation by a Noteholder in any circumstances in which such participation is unlawful will not be accepted.

Each Noteholder participating in the Consent Solicitation will be required to represent that it is an Eligible Noteholder as set out in "Procedures in connection with the Consent Solicitation" in the Solicitation Memorandum. Each of the Issuer and the Information and Tabulation Agent reserves the right, in its absolute discretion, to investigate, in relation to any submission of Electronic Voting Instructions, whether any such representation given by a Noteholder is correct and, if such investigation is undertaken and as a result the Issuer determines (for any reason) that such representation is not correct, such Electronic Voting Instruction may be rejected.

Disclaimer

This Announcement must be read in conjunction with the Solicitation Memorandum. The Solicitation Memorandum contains important information which should be read carefully before any decision is made with respect to the Consent Solicitation and the Proposals. If any Noteholder is in any doubt as to the action it should take, it is recommended to seek its own financial, legal and investment advice, including as to any tax consequences, from its stockbroker, bank manager, solicitor, accountant, independent financial adviser authorised under the Financial Services and Markets Act 2000 (the "FSMA") (if in the United Kingdom) or other appropriately authorised independent professional adviser. Any individual or company whose Notes are held on its behalf by a broker, dealer, bank, custodian, trust company or other nominee must contact such entity if it wishes to participate in the Consent Solicitation or otherwise vote in respect of the Proposals. None of the Issuer, the Borrower, the Information and Tabulation Agent, the Principal Paying Agent and the Trustee or any of their respective affiliates, directors, employees, officers, agents, consultants or representatives makes any representation or recommendation as to whether or not or how Noteholders should participate in the Consent Solicitation or vote in respect of the Proposals.

None of the the Information and Tabulation Agent, the Principal Paying Agent or the Trustee accepts any responsibility for the contents of this Announcement. For the purposes of the Market Abuse Regulation (EU) 596/2014 and Article 2 of Commission Implementing Regulation (EU) 2016/1055, this Announcement is made by Daniel Wynne, Director of Marston's Issuer PLC.

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November 11, 2020 03:00 ET (08:00 GMT)