Punch threatens to default on debt Punch Taverns on Wednesday issued a stark warning to bondholders asking them to agree to "final terms" for restructuring £2.3bn of debt or face default. Britain's second-biggest pub group said the offer - which comes after 14 months of negotiations - would shrink the company's debt by cancelling some notes in return for cash payments or issues of new securities to bondholders. The changes include increased interest rates on some of its borrowing. Stephen Billingham, executive chairman of the group, said the restructuring would create a robust debt structure which would provide certainty and stability for the business. "However, failure to do so will lead to a much worse outcome," he said in a statement. But major bondholders were unhappy about the proposals, arguing that the terms are too generous to both junior bondholders and the bank's equity holders - which in some cases are the same US hedge funds. The Association of British Insurers - which represents the holders of Punch's senior debt and has blocking stakes in a number of classes of Punch A and B notes - said Punch had not agreed the revised proposals with it before the announcement. Punch, which has 4,100 leased pubs, amassed large amounts of debt through a series of acquisitions following its float in 2002. The UK smoking ban and competition from cheap alcohol sold through supermarkets have hurt revenues and forced it to close pubs. The group has been locked in negotiations with bondholders over its refinancing plans since October 2012. Senior bondholders demanded better terms three times last year. The tenanted pub group has a complex debt structure, with debt split into two securitised vehicles, Punch A and Punch B. It is proposing to reduce total net debt from £1.5bn to less than £1.2bn in the larger of the pub group's two securitisations, by writing down some of the group's junior notes. A statement from a special committee of the ABI said: "The committee and its advisers have had limited interaction with the company and its advisers since the previous proposal announced on 9 December 2013. The committee's advisers did not have sight of transaction documents before today's announcement. Punch said failure to agree the terms would mean cash resources would be severely depleted, with the mandatory repayment of £188m of available cash to Class A notes at par and the loss of the £52m group cash contribution. Shares in Punch were down 1.2 per cent at 16p in lunchtime trading, giving the group an equity value of a mere £100m. A restructuring requires approval by a majority of 75 per cent of bondholders in each of the 16 classes of debt. Bondholders are due to vote on the restructuring proposal on February 14. It has seen its underlying performance improve in recent weeks. In a trading update for the 20 weeks to January 4, like-for-like net income rose 1.5 per cent in its core estate, which excludes some 1,106 pubs it has earmarked for sale once they become vacant.