Site sell-offs come too late to save debt-ridden Old Monk

by Mike Bennett Gerry Martin bowed to the inevitable this week ­ his eight-year-old Old Monk managed house business placed into administration, an estimated £11m in the red according to one industry insider but with the proceeds of a £3.45m sale to Puzzle Pub Co to come. Shares on the London AIMexchange were suspended at6.5 pence, the company having plunged in value from a peak of almost £16m to a nominal £1.7m. Rival operators were lining up to take a close look at the sites on offer as the administrators got down to work. Regent Inns ruled itself out, citing the fact that it was already in most of the same towns and cities, rather than because of any financing problems of its own. But Laurel and the sports café group Coliseum were believed to be in the running to pick up at least some of the outlets. Administration was being seen as the best way to continue trading, while the 600 permanent and temporary staff and suppliers led by Scottish Courage anxiously awaited news of any buyer. Old Monk finance controller Jo Fowler, who is working closely with the administrators, said: "I'm sorry I can't say anything about the situation here at the moment." An element of mystery surrounds the precise reasons why Royal Bank of Scotland, believed to be the biggest bank in the pub sector, finally pulled the plug. Old Monk had, after all, been selling off sites in a bid to reduce its debts and gearing had fallen from 165% to 138% over the past year. Although client confidentiality prevents the Edinburgh-based banking giant from commenting on thespecific case, it offered an insight into the problems that may have arisen. RBS spokesman Anthony Frost said these were "tough times" for managed pubs. "We know a lot about thissector and what I would say is that it's vital for companies who getinto difficulties to talk to us, and to talk to us early. It's no use leaving everything until the last minute, when it may be too late," he said. Frost explained it was "quite normal" for banks and other financial backers to impose conditions and covenants on spending or expansion plans ­ or both. "Cash is king," he said. "If the cashflow is not there, we may say that you have to do A, B and C in order to put the house in order. If those covenants are broken, we may have no option but to pull the plug. "It's the last resort, and it's not ordinarily in our interest to do so. "But sometimes you come to the end of the road." Negotiations with bankers lasting at least a fortnight had ground to a halt in what Martin, in an official statement, termed "an unsuccessful outcome" ­ even though he'd sold nine outlets for £3.45m to Puzzle and agreed terms with Fuller's on another. It wasn't enough. Now the remaining 30 outlets ­ 15 Old Monks, 10 Springbok sports bars and five unbranded pubs ­ will come under the spotlight, with a number of potential buyers in the frame. They'll need no reminding that all of them are on leasehold sites commanding high rents. Martin's older brother, Tim, founder and chairman of JD Wetherspoon, bought one site in Windsor from Old Monk during the summer, and some reports suggested he might take on some more. But he was untypically coy when asked if he wasprepared to bail out the ailing company, or if Gerry had approached him. "I really don't want to wind anybody up by commenting on this situation. It's Gerry's business. But I will say that Gerry and I are pretty good friends, and I'm sure he'd help me out if I got intotrouble as I would him," he said. But Tim Martin refused to say if that comment meant he would step in to salvage part or all of the business if asked. An industry source said, however, that he did "not believe Tim was particularly close to many people". He added: "I think the brothers get on, but for Tim this is business ­ and he doesn't let anything get in the way of that." The pair had worked together at Wetherspoon in the early days, and industry-watchers will wonder if it's possible Tim will try to find his brother a job within his own hugely successful pubco. Since Gerry set up his own operation in 1994, the brothers have often traded cheek-by-jowl. One of Old Monk's most expensive properties was just off Bishopsgate in the heart of the City of London. On a Friday evening in midsummer when it was visited by Morning Advertiser reporters, it was doing reasonable if unspectacular business ­ a session in which it would have needed to be heaving to have any chance of washing its face. Just across the road in the precincts of Liverpool Street mainline railway terminus, the muchbigger Wetherspoon-owned Hamilton Hall was full to overcrowding, and drinkers were startingto gather on the pavement areaimmediately outside. Thorley Taverns now operates four pubs in the City, having sold two under-performers earlier this year. Chairman Frank Thorley described trading conditions as "extremely difficult, unless you're Wetherspoon". He went on: "Let's put it this way, we're not planning to expand here. Everybody thinks the City is a licence to print money, but, as Gerry has found, that'ssimply not true. "We were originally the only pub in Middlesex Street, and now there are six. How can we all make money? There are far more pubs and bars but the same number of drinkers. Not only that, but many of the banks and offices are dry at lunchtimes now." The biggest Old Monk in the City was converted to a Springbok this summer, and has traded since then much more successfully. So maybe the name's a problem. Fuller's retail director Simon Emeny confirmed that he had exchanged contracts with Old Monk for the outlet in Winchester, Hampshire. But there are no plans to acquire any others. "We'll certainly be changing the name to something more traditional, because that's what it needs, and we're working on that," said Emeny. "It's a lovely waterside site which we're delighted to have acquired." Emeny himself believes the huge leasehold rents Old Monk was paying on the high street proved a major factor in its demise. "If we're into an economic downturn, and I think we are, then I wouldn't want to be a 100% leasehold operator," he said. Fuller's owns 86% of its own properties outright as freeholds, while its rent roll on the leasehold sites is a relatively modest £4m a year.