U.K. Pub Bond Deal Shows Investor Confidence in Reopening

Credit investors are showing confidence in the U.K.’s return to normality after the pandemic as one of the country’s largest pub operators tightened pricing for its new bonds.

Punch Taverns Ltd. improved terms for 600 million pounds ($834 million) of new notes due to investor demand. The bonds priced with a coupon of 6.125% on Friday, lower than the mid-6% indication given earlier in the week.

The deal shows how investors are shrugging off fears over the spread of the delta variant of Covid-19 in the U.K, which forced the government to delay the lifting of restrictions limiting capacity for pubs and restaurants.

Leisure sector firms are taking advantage of buoyant credit markets as investors continue to chase yield to beat rising inflation. The coupon Punch is offering sits well above the average yield for bonds with a similar rating, four notches below investment grade.

This month, gym chain David Lloyd Leisure Ltd. sold about 1 billion euros ($1.19 billion) of notes in a bet that a successful vaccine roll-out will eventually lead to a full reopening. David Lloyd’s notes are trading slightly above par, according to data compiled by Bloomberg.

Punch’s rival Stonegate Pub Co. also issued notes last year in a landmark deal that came shortly after the first wave of the pandemic. The sterling-denominated notes are indicated at 105 pence on the pound, the data show.

Read more: U.K. Gym Chain Makes Bond Debut in Bet Fitness Fans Will Return

Punch, with a portfolio of about 1,300 pubs across the country, had to restructure its debt in the aftermath of the financial crisis having raised bonds in several securitized vehicles. Private equity firms Patron Capital and May Capital acquired it in 2017 in a deal with beer giant Heineken NV.

The new secured bond will refinance some of the structured notes and extend debt maturities.

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