Enterprise Inns-censes investors
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 calls for major rethink of Basel III rules
Isda AGM: Divergence on implementation suggests rules could be flawed, bankers say
Saudi Arabia poised to become clean netting jurisdiction
Isda AGM: Netting regulation awaiting final approvals from regulators
Japanese megabanks shun internal models as FRTB bites
Isda AGM: All in-scope banks opt for standardised approach to market risk; Nomura eyes IMA in 2025
CFTC chair backs easing of G-Sib surcharge in Basel endgame
Isda AGM: Fed’s proposed surcharge changes could hike client clearing cost by 80%
UK investment firms feeling the heat on prudential rules
Signs firms are falling behind FCA’s expectations on wind-down and liquidity risk management
The American way: a stress-test substitute for Basel’s IRRBB?
Bankers divided over new CCAR scenario designed to bridge supervisory gap exposed by SVB failure
Industry warns CFTC against rushing to regulate AI for trading
Vote on workplan pulled amid calls to avoid duplicating rules from other regulatory agencies
Bank of Communications moves early to meet TLAC requirements
China Construction Bank becomes last China G-Sib to release TLAC plans
Most read
- Top 10 operational risks for 2024
- Top 10 op risks: third parties stoke cyber risk
- Japanese megabanks shun internal models as FRTB bites