REG - Marston's Issuer Plc - COVID-19 CONSENT SOLICITATION

MarstonsAnnouncement

07/05/2020 13:50

RNS Number : 3034M
  
Marston's Issuer PLC
  
07 May 2020
  
 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF THE MARKET ABUSE REGULATION (EU) 596/2014.
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO, OR TO ANY PERSON LOCATED OR RESIDENT IN, ANY JURISDICTION WHERE IT IS UNLAWFUL TO RELEASE, PUBLISH OR DISTRIBUTE THIS DOCUMENT. NOTHING IN THIS ANNOUNCEMENT CONSTITUTES OR CONTEMPLATES AN OFFER OF, AN OFFER TO PURCHASE OR THE SOLICITATION OF AN OFFER TO SELL SECURITIES IN THE UNITED STATES OR ANY OTHER JURISDICTION.
MARSTON'S ISSUER PLC ANNOUNCES COVID-19 CONSENT SOLICITATION
 
7 May 2020
Overview
Marston's Issuer PLC (the "Issuer") today announces a consent solicitation (the "Consent Solicitation") in respect of the £236,000,000 Class A1 Secured Floating Rate Notes due 2020 (XS0226787280) (the "Class A1 Notes"), the £214,000,000 Class A2 Secured Fixed/Floating Rate Notes due 2027 (XS0226790748) (the "Class A2 Notes"), the £200,000,000 Class A3 Secured Fixed/Floating Rate Notes due 2032 (XS0226792280) (the "Class A3 Notes") and the £250,000,000 Class A4 Secured Floating Rate Notes due 2031 (XS0331071026) (the "Class A4 Notes", and together with the Class A1 Notes, the Class A2 Notes and the Class A3 Notes, the "Notes").  
The Consent Solicitation is being launched in order to seek the approval of the holders of the Notes (the "Noteholders") (by way of Extraordinary Resolution at a single meeting of the Noteholders) to certain waivers and amendments in respect of certain provisions in the financing to which the Issuer is a party, as described further below. The need for these waivers and amendments has arisen directly as a result of the closure of pubs, restaurants and other hospitality venues on 20 March 2020 by order of the UK Government as a result of the COVID-19 pandemic as described below.
Capitalised terms used in this announcement (the "Announcement") and not defined herein shall have the meanings ascribed to them in the Consent Solicitation Memorandum dated 7 May 2020 (the "Solicitation Memorandum").
Rationale and Background to the Proposals 
As mentioned above, Noteholders will be aware that, in response to the COVID-19 pandemic, the UK Government has introduced restrictions which have required pubs, restaurants and other non-essential retail businesses in the United Kingdom to close since 20 March 2020, with a stricter "lockdown" of people's movements being put in place since 23 March 2020. Such measures were formalised in law in the Stay at Home Measures on 26 March 2020.
In compliance with those measures, Marston's Pubs Limited (the "Borrower") and its parent, Marston's Pubs Parent Limited (together with the Borrower, the "Security Group"), have closed all of the 950 pubs within the Secured Estate, which has had a significant negative effect on the net earnings of the Security Group. As a consequence, the Issuer is requesting (i) a limited number of waivers in respect of certain Loan Events of Default and other obligations of the Borrower under the Issuer/Borrower Facility Agreement, and (ii) certain amendments to the Issuer/Borrower Facility Agreement ((i) and (ii) together, the "Proposals"), the need for which has arisen solely to manage the impact under the Transaction Documents of the COVID-19 pandemic and the Security Group's compliance with the measures taken by the UK Government to tackle the outbreak. 
The Issuer and the Borrower consider the implementation of the Proposals to be in everyone's interests in order to avoid any potential defaults in the Security Group and thereby enable the Security Group to see through this very challenging period whilst maintaining its value.  The Issuer draws Noteholders' attention to the following key points (each of which is described in further detail in Solicitation Memorandum):
(i)    Security Group's strong performance record: the Security Group has enjoyed an exemplary track record and has performed well within the covenant levels (and indeed Restricted Payment levels) for every Financial Quarter since the financing was put in place in 2005. It has had a consistently robust cash position with strong cash generation across both its managed and tenanted pub estates (exemplified by its cash balance of £21.6 million at the close of the Financial Quarter ending 28 March 2020, which enabled it to comfortably cover its debt service payment for that quarter in spite of pubs having been closed for three weeks before the due date).
The Security Group considers the Proposals to be the minimum changes necessary to support the financing through the disruption caused by the COVID-19 pandemic, based on current assumptions that pubs and restaurants will be forced to remain closed during some of the summer period, and that once they are able to gradually reopen, there will likely continue to be a number of restrictions imposed on their operations in order to maintain an element of social distancing. Thanks to its strong track record and high quality pub portfolio, however, the Security Group is confident that its performance will recover once the lockdown restrictions are eased in due course.
Therefore, the Proposals avoid any potential defaults and afford the Security Group the flexibility it needs to enable the business to come through these unprecedented circumstances whilst maintaining its value;
(ii)   Sufficient liquidity ensures no loss to Noteholders: although the closures of all pubs and restaurants throughout the current Financial Quarter will mean that there will be no significant revenue streams throughout this period, the Security Group and wider Marston's group have taken a number of mitigation actions (described in more detail below) to ensure that costs to the Security Group throughout this period are kept to a minimum. As a direct result of pub closures, the Security Group expects to utilise part of its £120 million liquidity facility to meet in full its quarterly debt service obligations in the region of £18 million on 15 July 2020.
With the expectation that social distancing measures will be in place following the re-opening of pubs and restaurants, we have assumed that the revenues for the fourth Financial Quarter are likely to be around a quarter to a third below the level in the same quarter in previous years and still to be somewhat below pre-COVID-19 levels in a number of subsequent quarters. However, the Security Group still anticipates cash revenues to be at sufficient levels to require no further drawings under the liquidity facility. Furthermore, it is the Security Group's intention that such borrowing under the Liquidity Facility will start to be repaid on the Interest Payment Date falling on 3 January 2021 with repayments gradually increasing on subsequent Interest Payment Dates until repayment is made in full on the Interest Payment Date falling on 15 October 2021. The Issuer will therefore be able to meet the required debt service payments due to Noteholders in full in spite of the COVID-19 pandemic impact.
Finally, until a period of time after pubs and restaurants have been allowed to reopen without any restrictions, the Security Group expects not to meet its Free Cashflow to Debt Service Covenant ratio of 1.10:1.00. It anticipates that:
(a)   its two Financial Quarter Debt Service covenant for the Relevant Periods ending on 27 June 2020 and 3 October 2020 will drop to around 0.65:1.00 and 1.06:1.00 respectively, and then return to above the required covenant level of 1.10:1.00 by its first Financial Quarter of the next Financial Year ending on 3 January 2021; and
(b)   its four Financial Quarter Debt Service covenant for the Relevant Years ending on 27 June 2020, 3 October 2020 and 3 January 2021 will drop to around 1.10:1.00, and then return to above the required covenant level of 1.10:1.00 by its second Financial Quarter of the next Financial Year ending on 3 April 2021.
Therefore, among other things, the Proposals request technical waivers in respect of the periods ending on 27 June 2020 and 3 October 2020 and an amendment to reduce the four Financial Quarter Debt Service covenant for the Relevant Year ending on 3 January 2021 to 1.00:1.00 in order to prevent potential defaults arising in due course; and
(iii)  Mitigation actions: the Security Group and wider Marston's group are taking an extremely prudent approach in managing its business during this period of unprecedented uncertainty and are keeping the situation under continuous review. They have taken a number of steps so far both to mitigate the impact of the restrictions imposed by the UK Government and ensure that their pubs will be able to reopen and recommence trading once such restrictions are lifted. These include:
(a)   suspending the Marston's group's interim dividend payment and certain Restricted Payments from the Security Group until after the end of the Financial Year ending on 2 October 2021, in order to maximise liquidity in both the Security Group and wider Marston's group;
(b)   minimising underlying costs by suspending the incurrence of all non-essential capital and operational expenditure in respect of the pubs in the Secured Estate (except for essential or critical health and safety expenditure);
(c)   furloughing circa. 93 per cent. of employees with support of the UK Government Job Retention Scheme and reducing salaries by 20 per cent. for all staff and 50 per cent. for the Chief Executive Officer and Chairman. All employees are being retained in order to ensure that the business maintains its full operational capabilities when the restrictions end;
(d)   utilising the temporary business rates relief package announced by the UK Government (eliminating one of the Group's most material fixed costs for the current fiscal year) and agreeing with HMRC to defer payments of VAT, PAYE, corporation tax and duties;
(e)   regularly engaging with tenants with a view to ensuring that rent can be paid and tenants are in a position to recommence trading once the restrictions imposed by the UK Government are eased (for example, by helping tenants to access grants and income support made available by the UK Government to support small businesses); and
(f)    consulting with larger suppliers that have been supportive in agreeing additional payment terms and readying the Security Group for reopening, in order to ensure that the provision of supplies and the activity of the pubs in the Secured Estate can return to normal trading levels as soon as possible.
Further measures will be taken as necessary to mitigate the impact of the COVID-19 pandemic, including pursuing further UK Government support or financial assistance schemes and preparing the Security Group's tenants to return to normal trading levels.
The Security Group is pleased and grateful to the group of Noteholders holding, in aggregate, 48.42 per cent. of the principal amount outstanding of the Notes, who were willing to discuss the Proposals prior to this Announcement and have indicated that, subject to client and other approvals, they intend to vote in favour of the Extraordinary Resolution.  The Issuer very much hopes that other Noteholders will see this as a positive indication that the Proposals are a fair and appropriate package of measures to be effected in these unprecedented circumstances.
If the Proposals are not approved, technical Loan Events of Default will occur.  While the potential implications of a Loan Event of Default cannot be predicted with certainty, any default is likely to have a material negative impact for all stakeholders in the Transaction over and above the impact of the UK Government Measures, given (i) the risk of significant ongoing disruption to the business of the Security Group and its potentially negative impact on the ability of the Security Group to maintain its value and (ii) the potential administrative receivership costs. These factors would also be expected to have a negative impact on leverage and cash flows within the Security Group.
Proposals
For the reasons set out above, the Issuer is calling a meeting of Noteholders in order to seek the consent of Noteholders to implement the Proposals, the terms of which are set out in the Solicitation Memorandum. The Proposals require the approval of the Class A Noteholders and, if the Proposals are approved at the meeting, such approval will bind all Class A Noteholders and also the Class B Noteholders. The Proposals will be implemented by entry into of the Deed of Amendment and Waiver.
Meeting of Noteholders
A single meeting of holders of the Notes to consider, and if thought fit, pass the Extraordinary Resolution to approve the Proposals shall take place at the offices of Freshfields Bruckhaus Deringer LLP, 65 Fleet Street, London EC4Y 1HS at 10.00 a.m. (London time) on 29 May 2020 in respect of the Notes. Noteholders are directed to the Notice of Meeting and the Solicitation Memorandum (information relating to which has been sent today to all Noteholders via the Clearing Systems) which contains the full terms of the Proposals and details of the Meeting.  
In light of ongoing developments in relation to the COVID-19 pandemic, it may be impossible or inadvisable to hold a physical Meeting at the offices of Freshfields Bruckhaus Deringer LLP,  In that event, the Issuer and the Note Trustee may prescribe further or alternative regulations regarding the holding of the Meeting, which may include holding the Meeting by audio or video conference call. In such circumstances, those Noteholders who have indicated that they wish to attend the Meeting in person will be provided with further details about attending the Meeting.
Noteholders who do not wish to attend the Meeting but who wish to vote must take action on or prior to 10.00 a.m. (London time) on 27 May 2020 (the "Expiration Time"), subject to amendment, extension or termination by the Issuer and any earlier deadlines set by any intermediary through which such Noteholders hold their Notes.
Implementation
The implementation of the Proposals and the Extraordinary Resolution will be conditional on the passing of the Extraordinary Resolution and the execution of the Deed of Amendment and Waiver. The Deed of Amendment and Waiver will take effect from the date that such Deed of Amendment and Waiver is entered into or, if later, the date on which it becomes effective in accordance with its terms, and will (i) document the waivers requested and (ii) effect the amendments to the Issuer/Borrower Facility Agreement, which will together reflect the Proposals. Further detail on the Proposals is set out in the Solicitation Memorandum.
Early Instruction Fee
Subject to the conditions set out in the Solicitation Memorandum and the approval of the Extraordinary Resolution, the Issuer will pay or procure to be paid on the Payment Date to each Eligible Noteholder that has delivered a valid Electronic Voting Instruction in favour of or against the Extraordinary Resolution which has been received by the Information and Tabulation Agent at or prior to the Early Instruction Deadline, which has not been validly withdrawn at or prior to the Expiration Time and which remains in full force and effect until the conclusion of the Meeting, the Early Instruction Fee equal to 0.05 per cent. of the Principal Amount Outstanding of the Notes that are the subject of the relevant Electronic Voting Instruction. Any Early Instruction Fee shall be paid on the Payment Date via the relevant Clearing System for payment to the cash account of the relevant Direct Participant in such Clearing System for onward payment to the relevant Beneficial Owner (if applicable).
Eligible Noteholders will not be eligible to receive the Early Instruction Fee for Electronic Voting Instructions submitted after the Early Instruction Deadline or for Electronic Voting Instructions that do not vote in favour of or against the Extraordinary Resolution or if they seek to vote in respect of the Extraordinary Resolution in any other manner, whether or not they vote in favour of or against the Extraordinary Resolution.
Only Eligible Noteholders may deliver a valid Electronic Voting Instruction and, therefore, only Eligible Noteholders may receive the Early Instruction Fee.
 




Expected Timetable Event






Date





Announcement of the Consent Solicitation and the Proposals via the RNS. Notice of Meeting given to Noteholders through the Clearing Systems.






7 May 2020




Solicitation Memorandum and draft of the form of the Deed of Amendment and Waiver to be made available by the Information and Tabulation Agent (copies of which are obtainable by Noteholders upon request, free of charge).






7 May 2020




Early Instruction Deadline: Latest time and date for receipt of Electronic Voting Instructions through the Clearing Systems to be received by the Information and Tabulation Agent for eligibility for payment of the Early Instruction Fee. Such Electronic Voting Instructions must be in favour of or against the Extraordinary Resolution in order for the relevant Noteholder to be eligible for the Early Instruction Fee.






4.00 p.m. (London time)
on 20 May 2020




Expiration Time: Latest time and date for (i) receipt by the Information and Tabulation Agent of valid Electronic Voting Instructions through the Clearing Systems (such Electronic Voting Instructions are irrevocable from this date) and (ii) obtaining a voting certificate from the Principal Paying Agent and for the issuance or withdrawal of a voting instruction whether given by way of an Electronic Voting Instruction or otherwise.






10.00 a.m. (London time)
on 27 May 2020




Time and date of the Meeting in respect of the Notes.






Commencing at 10.00 a.m. (London time) on 29 May 2020 as set out in the Notice of Meeting
 




Announcement of result of the Meeting via the RNS. Notice of result of the Meeting to be given to Noteholders through the Clearing Systems.






As soon as reasonably practicable after the Meeting 




If the Extraordinary Resolution is passed at the Meeting, execution of the Deed of Amendment and Waiver.






As soon as reasonably practicable after the Meeting




If the Consent Conditions are satisfied, payment of any Early Instruction Fee to relevant Eligible Noteholders (the "Payment Date").






Expected to be on or about 5 June 2020, being the date falling 5 Business Days after the date of the quorate Meeting



 
Noteholders or Beneficial Owners are advised to check with the bank, securities broker, Clearing System or other intermediary through which they hold their Notes whether such intermediary applies different deadlines for the receipt of Electronic Voting Instructions or (in the limited circumstances in which withdrawal is permitted) to the withdrawal of Electronic Voting Instructions to vote in respect of the Proposals, and then to adhere to such deadlines if such deadlines are prior to the deadlines set out above.
All of the above deadlines for the submission and (where permitted) revocation of Electronic Voting Instructions are subject to earlier deadlines that may be set by the Clearing Systems or any intermediary.
General
The Issuer may, at its option and in its sole discretion, amend, terminate or waive any of the terms and conditions relating to the Consent Solicitation at any time (subject in each case to applicable law and the Noteholder Meeting Provisions and as provided in the Solicitation Memorandum, and provided that no amendment may be made to the Extraordinary Resolution or the Expiration Time).
In relation to the delivery or withdrawal of Electronic Voting Instructions, in each case, through the Clearing Systems, Noteholders holding Notes in Euroclear or Clearstream, Luxembourg should note the particular practice of the relevant Clearing System, including any earlier deadlines set by such Clearing System or any intermediary.
Only Noteholders who are shown on the records of a Clearing System as a holder of the Notes (each a "Direct Participant") may deliver Electronic Voting Instructions. Noteholders who are not Direct Participants in Euroclear or Clearstream, Luxembourg should arrange for the Direct Participants through whom they hold their Notes to deliver an Electronic Voting Instruction on their behalf to the relevant Clearing System as more particularly described under "Procedures in connection with the Consent Solicitation - Procedure for Delivering Electronic Voting Instructions" in the Solicitation Memorandum.
Noteholders are advised to read carefully the Solicitation Memorandum for full details of and information on the procedures for participating in the Consent Solicitation.
A complete description of the terms and conditions of the Consent Solicitation is set out in the Solicitation Memorandum.
For Further Information:
Further details on the Consent Solicitation and copies of the Solicitation Memorandum can be obtained from:
The Solicitation Agent
HSBC Bank plc
8 Canada Square
London E14 5HQ
United Kingdom
Tel:                         +44 (0) 20 7992 6237
Email:                    LM_EMEA@hsbc.com   
Attention:              Liability Management Group
The Information and Tabulation Agent
D.F. King Ltd.
65 Gresham Street
London EC2V 7NQ
United Kingdom
Tel:                         +44 (0) 20 7920 9700

Email:                    marstons@dfkingltd.com 
Website:                                https://sites.dfkingltdcom/marstons 
Further details relating to the contents of this Announcement can be obtained from: 
Marston's Pubs Parent Limited
Marston's House

Brewery Road
Wolverhampton WV1 4JT

United Kingdom
Attention: Rob Leach
Solicitation Restrictions
This Announcement does not constitute an invitation to participate in the Consent Solicitation in any jurisdiction in which, or to any person to whom, it is unlawful to make such invitation or for there to be such participation under applicable securities laws. The distribution of this Announcement in certain jurisdictions may be restricted by law.
Persons into whose possession this Announcement comes are required by each of the Issuer, the Borrower, the Group, the Solicitation Agent, the Information and Tabulation Agent, the Trustee and the Principal Paying Agent to inform themselves about, and to observe, any such restrictions.
United States
This Announcement is not an offer of securities for sale in the United States or to, or for the account or benefit of, any U.S. person. Securities may not be offered or sold in the United States absent registration or an exemption from registration. The Notes have not been and will not be registered under the Securities Act, or the laws of any state or other jurisdiction of the United States, and may not be offered or sold in the United States or to, or for the account or benefit of, U.S. persons, unless an exemption from the registration requirements of the Securities Act is available.
General
Nothing in this Announcement constitutes or contemplates an offer of, an offer to purchase or the solicitation of an offer to sell any security in any jurisdiction and participation in the Consent Solicitation by a Noteholder in any circumstances in which such participation is unlawful will not be accepted.
Each Noteholder participating in the Consent Solicitation will be required to represent that it is an Eligible Noteholder as set out in "Procedures in connection with the Consent Solicitation" in the Solicitation Memorandum. Each of the Issuer, the Solicitation Agent and the Information and Tabulation Agent reserves the right, in its absolute discretion, to investigate, in relation to any submission of Electronic Voting Instructions, whether any such representation given by a Noteholder is correct and, if such investigation is undertaken and as a result the Issuer determines (for any reason) that such representation is not correct, such Electronic Voting Instruction may be rejected.
Disclaimer
This Announcement must be read in conjunction with the Solicitation Memorandum. The Solicitation Memorandum contains important information which should be read carefully before any decision is made with respect to the Consent Solicitation and the Proposals. If any Noteholder is in any doubt as to the action it should take, it is recommended to seek its own financial, legal and investment advice, including as to any tax consequences, from its stockbroker, bank manager, solicitor, accountant, independent financial adviser authorised under the Financial Services and Markets Act 2000 (the "FSMA") (if in the United Kingdom) or other appropriately authorised independent professional adviser. Any individual or company whose Notes are held on its behalf by a broker, dealer, bank, custodian, trust company or other nominee must contact such entity if it wishes to participate in the Consent Solicitation or otherwise vote in respect of the Proposals. None of the Issuer, the Borrower, the Solicitation Agent, the Information and Tabulation Agent, the Principal Paying Agent and the Trustee or any of their respective affiliates, directors, employees, officers, agents, consultants or representatives makes any representation or recommendation as to whether or not or how Noteholders should participate in the Consent Solicitation or vote in respect of the Proposals.
None of the Solicitation Agent, the Information and Tabulation Agent, the Principal Paying Agent or the Trustee accepts any responsibility for the contents of this Announcement. For the purposes of the Market Abuse Regulation (EU) 596/2014 and Article 2 of Commission Implementing Regulation (EU) 2016/1055, this Announcement is made by Daniel Wynne, Director of Marston's Issuer PLC.
 
 


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