
Enterprise Inns-censes investors
News
Moody’s decision to put Enterprise Inns on review for downgrade caused consternation among sterling investors who had bought the pub company’s debenture issues, a form of secured debt.
The rating agency’s main concern was the level of refinancing risk associated with Enterprise Inns (rated Ba2) exercising its option to buy the 83% of the Unique Pub Company that it does not already own. The threat of the debentures moving to sub-investment grade from Baa3, and thus triggering forced sellers, threw spreads out by around 35bp.
Michael Markham, fund manager at Investec, disagreed with Moody’s decision on the debentures. “We like it as a concept, but the rating agencies do not give it the necessary uplift,” he says.
He points to the added security assurances, such as over-collateralisation, the business being cash generative and the ability to pledge more assets if necessary to maintain the firm’s income and coverage ratios, as factors supporting a higher rating for the debentures. According to Moody’s, only two notches can separate a company’s corporate rating and its secured debt.
The company’s announcement that it would finance the Unique acquisition through debt also incensed bondholders. “We are disappointed they took this action as we were under the impression that Enterprise would fund the final purchase under equity and debt,” he says.
Ultimately the transaction will require both board and shareholder approval, but Ted Tuppen, Enterprise’s chief executive officer, said in a conference call last month that he intends “to move heaven and earth” to live up to his commitment of keeping his rating investment grade.
Investec’s Markham believes that the issue could be positively resolved for bondholders. “Enterprise needs the debt markets; they are an appropriate way to fund their business,” he says.
Andrew Burton, credit analyst at Royal Bank of Scotland, also has a positive view on events, but warns that the Moody’s rating panel, which ultimately makes the decision, could throw a spanner in the works.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Industry confused by EU’s ‘bingo card’ clearing rules
Uncertainty over definition of representative trades in Emir active account requirement
FDIC scrutinised over move to cover all SVB deposits
Advisory panel questions whether guaranteeing uninsured deposits was necessary to prevent contagion
EBA seeks to tighten up uneven prudent value adjustments
Regulator to consult ‘soon’ on changes to improve consistency of capital deductions
Post-Brexit divergence puts EU subsidiaries on the rack
Banks face choice between higher staffing costs or over-engineered processes at UK headquarters
SEC criticised for belt-and-braces ban on volume-based pricing
Legal experts question need for rules to prevent firms disguising agency trades as proprietary
SEC expected to protect CRT in conflicts of interest rule
Decision could come as early as today; high hopes for credit risk transfer exemption
FRTB managers face hard facts about risk factors
There are ways to reduce the capital charges caused by NMRFs, but they come at a price
SEC official defends delayed dealer registration rule
Regulator says market should be treated like equities, but PTFs warn it will harm market liquidity