From WSJ on April 16, 2007:
"By JENNIFER MARTINEZ
LONDON -- As the recession prompts U.K. pub crawlers to drink at home more often, two of the country's biggest pub owners are selling or closing hundreds of locations to pay the tab from a decade-long expansion.
Punch Taverns PLC and Enterprise Inns PLC together own nearly a third of the U.K.'s 56,000 public houses. The two emerged as leaders of the pub industry by borrowing heavily when credit was cheap, snapping up thousands of the cherished British drinking halls, which have long served as both an extension of the living room and the social nexus of neighborhoods here.
Beer consumption in U.K. pubs fell nearly 10% last December.
But now the credit crunch and the recession have combined to force a retrenchment. Consumers are increasingly likely to buy their beer at the supermarket, where it costs about £1 ($1.49) a can, rather than pay about £3 for a pint at the local pub. A ban on smoking in pubs that took effect in 2007 is also keeping some people home.
Punch and Enterprise saw their 2008 revenue fall 8.2% and 4.5%, respectively, from 2007.
"London pubs are so expensive," said Stewert Melvin as he smoked a cigarette in front of a Punch pub on Fleet Street on Wednesday.
While Mr. Melvin, who works at an investment bank in the City, has room in his budget to go to a pub and prefers to drink whisky there, he said he frequently orders beer lately because it's cheaper. Mr. Melvin said pubs are "noticeably less full" in his East London neighborhood.
British students favor drinking at home before going out on the weekend because "it's more economical," said Nikhil Khosla, 21 years old. A student at the London School of Economics, he was watching soccer team Arsenal beat the Villarreal team at the Coach and Horses pub off Fleet Street. "This cost me £3.50," he said, pointing to his pint.
In all, beer consumption in U.K. pubs was down 9.9% in December 2008, according to the British Beer and Pub Association, and pubs sell 6.7 million fewer pints per day than they did 10 years ago.
As cash flow from their pubs has dwindled, the debt accumulated by Punch and Enterprise has become problematic. These days, the companies are relying largely on proceeds from pub sales to pay down billions in debt.
Though the two companies' shares have risen slightly in recent weeks, their stocks are still down sharply from a year ago, Punch's by 82% and Enterprise's by 69%.
The sales come amid general alarm in Britain about pub closures. In recent weeks, the industry has frequently cited a statistic indicating that 39 pubs are closing a week as the recession picks up steam. About half of those closings involve pubs that are independently run, while 40% or so come from pub aggregators such as Punch and Enterprise.
Pub owners say they can't keep up with cheaper retail beer prices. "The supermarkets are killing trade" in pubs, says Anne Biggs, a former Punch publican, or saloonkeeper, in St. Helens in northwest England.
Punch and Enterprise have £4.5 billion and £3.7 billion in debt, respectively. Both companies aim to sell more than 200 pubs this year, significantly more than analysts had expected last fall.
The companies will continue to shed a similar number next year, the analysts believe, though that will hinge on how much cash they receive from the sales.
"The absolute magnitude of the debt they have means they will need to reduce it just to ensure that when they negotiate any debt facility, they'll be in a slightly better position," says Charles Stanley Securities analyst James Dawson.
Increasingly, Enterprise's plan is to sell pubs that aren't performing well to buyers who will redevelop the sites as office buildings or restaurants, or even knock them down for housing complexes. The pub company, which owns more than 7,000 locations, has sold 150 pubs so far this year, more than double the number sold in 2008.
"If we can get a better price for a building that is no longer viable as a pub, then clearly we would sell it for alternative use," says Enterprise Chief Executive Ted Tuppen.
"Basically what the current recession has highlighted," he adds, "is the accelerated closure of pubs that would have been unviable over time."
Enterprise currently has securitized bonds of £1.6 billion and a bank syndicated facility of £1 billion that expires in 2011. The company's plan to sell off its pubs is partly aimed at reducing the £1 billion bank syndicated facility so the entire amount doesn't have to be refinanced, says KPC Peel Hunt analyst Paul Hickman.
"They'll need to have made those debt reductions before the end of 2010. The pressure on them is in this year and next year," Mr. Hickman says.
The current focus at Punch -- which leases 7,560 locations and manages another 864 -- is to sell its pubs to current tenants. The bulk of Punch's debt is securitized. The company bought up thousands of pubs over the years and set up a program that secured its debt against the pubs already under its ownership.
At the end of 2008, Punch wrote to 500 tenants of its "worst performing outlets" and offered them the chance to buy the lease, a Punch spokesman says. He adds that the publicans will be able to continue operating the pubs even if they decline to place a bid."