Sidley & Austin advises in first pub securitisation

A team of 13 English lawyers at US firm Sidley & Austin has become the first to advise in what is set to become a major new UK market public house securitisation.

The firm's London office advised Morgan Stanley & Co International on arranging a £231m bond issue for the Wellington Pub Company.

The bonds are the first to be secured on the rents paid by pub landlords and are likely to be the first of many issued this year by several newly-formed pub-owning companies.

Wellington, advised by a team of five from Slaughter and May led by Jeff Triggs and David Beales, is issuing the bonds to finance its purchase last November of 845 pubs from Nomura's Phoenix Inns.

Nomura itself became Britain's biggest pub owner late last year when it bought Inntrepreneur's portfolio, bringing the total number of pubs it owned to over 4,000.

Nomura, too, is likely to venture into the bond market in the second quarter of this year.

Wellington's bonds are secured on long-term tenancy agreements with upward only rent reviews.

They have been issued with an unusually long life 31 years and, equally unusually, are all fixed rate.

Three types of bonds were issued: £160m Class A, £51m Class B and £20m Class C, with priority of repayment going to Class A first followed by B and C bonds.

Sidleys partner Jenifer Williams advised Duff & Phelps Credit Rating, which gave £160m-worth of the bonds (those categorised as Class A) a triple-A rating, while £51m Class B bonds got a single-A rating and £20m Class C bonds got no rating at all.

Her colleague, Graham Penn, the partner who led the team advising Morgan Stanley, said that the spread of classes and risks, and the difference in their respective returns, widened the pool of potential investors.

He added: “The sizeable proportion of the bonds to be triple A-rated demonstrates that this is a very strong and well-structured transaction.”

Penn said that there had been a “Chinese wall” in place between him and Williams to prevent a conflict of interest arising.

He stressed that Morgan Stanley had been a long-standing client of the London office and that he had not picked up the work through Sidley's US connections.