Mitchells & Butlers (MAB) and Revolution Bars (RBG) have been granted respite from their lenders, as the closures of pubs, bars and restaurants continue to squeeze their owners’ liquidity.
The government ordered the temporary shuttering of leisure sites on 20 March in a bid to reduce the spread of coronavirus. The outbreak had already dampened sales in pubs and restaurants in the days preceding the lockdown. Like-for-like restaurant sales fell 21 per cent in the week covering 9-15 March, according to intelligence database Statista, while bar sales dropped 14 per cent.
On 18 March, Mitchells & Butlers disclosed that its next securitisation payment and covenant test would take place at its half-year point on 11 April. The group, which manages a roster of brands including Harvester and Toby Carvery, said that it has established sufficient financial headroom “such that we believe the group could suffer a significant loss in the remaining four weeks to the test date and still clear covenant levels”. At the time of this announcement, the government’s guidance rested at advising punters to avoid pubs, rather than advocating a full shutdown.
Mitchells & Butlers has today warned that the forced closure of its sites “could amount to a technical breach of our secured financing arrangements”. It has secured a temporary waiver on its covenant test until 15 May in order to avoid a breach, and believes that it has sufficient cash “to fund obligations well into the second half of the year”. Mitchells’ securitisation does not allow for the business to cease trading for more than 30 days, but it has been accepted that the coronavirus pandemic sits outside of the group’s control.
The group has furloughed over 99 per cent of its employees, enacted salary cuts and stopped nonessential capital expenditure. It will also benefit from the government’s business rates holiday – its annual rates bill is around £100m, and half of this saving will fall into this financial year. Mitchells & Butlers did not disclose any numerical detail regarding the strength of its balance sheet.
Revolution Bars has secured breathing space from its lender NatWest that should give it enough liquidity until the end of August, according to house broker Peel Hunt. It announced today that the bank has agreed to increase its revolving credit facility to £30m until 31 August 2020, after which it will lower to £24m – these limits previously sat at £21m and £18m, respectively, with the step down due to take place at the end of June. NatWest has also agreed to waive all financial covenant tests scheduled for March and June.
As of 11 April, Revolution Bars had net bank debt of £17.8m, and Peel Hunt expects this to rise to £26m in June. The group’s monthly cash burn now sits at £1.9m, the analysts wrote in a note. Revolution Bars has also reduced its weekly operating costs to £0.4m, and renegotiated down transaction payments to a landlord from £3.64m to £2.25m. It reached an agreement to defer more than half of these payments, saving a March cash outflow of £2.8m. The group expects to resume trading in July.
