Britain's biggest pub operator has reportedly started controversial talks to reduce its £2.3 billion debt mountain which are set to spark a bitter battle for control of the company.
Punch Taverns, which owns some 5,000 pubs, has proposed a complex loans-for-equity swap that would allow it to walk away from much of its debt but give creditors a majority stake, according to the Sunday Times.
The plans are expected to trigger a fight for control between thousands of bondholders, who stand to lose billions, and shareholders, who have already seen the value of their stakes crumble.
The company built up the debts in an ambitious expansion drive but its shares have dropped from nearly £14 five years to about 8p after it was hit by the smoking ban and a fall in trade following the financial crisis. Its market value has shrunk from £3 billion to £53 million.
Punch last year demerged its managed pubs arm, called Spirit Group, which offloaded 800 sites but left it with most of the debt.
It is in the middle of a turnaround plan that involves selling its 2,000 worst-performing site and recently said it was on track to close between 400 and 500 outlets this financial year.
Profits in the 28 weeks to March 3 fell by 20% to £33 million as like-for-like net income in its core estate dipped 2.1% amid the slump in consumer spending.
It has hired Goldman Sachs and Blackstone to advise on the negotiations. Under the plans, Punch would remain listed with investors taking a significant minority stake. It is thought the proposals will also lead to a tussle between its lenders.
Its debts are held in two vehicles - Punch A and Punch B. Punch A is backed by the income from about 3,000 pubs and Punch B by that from the other 2,000.
Both sets of creditors want to break up the company but Punch argues such a move is impossible because it operates as one company and unpicking its operations - from delivery trucks to the payment system - would be extremely difficult.