Whitbread puts bonds plan on hold as credit crisis bites

The turmoil in the credit markets has led to Whitbread delaying its plans to issue bonds secured on its hotel and restaurant assets.

However, the company started a £300m share buy-back programme yesterday as it posted strong first-half sales.

Its chief executive, Alan Parker, said Whitbread, which runs the Premier Inn budget hotel chain and Costa Coffee, was "ready to push the button" on its plans for a bonds issue when the time was right. "Everybody has told us that, given the turmoil in the credit markets, unless there was a critical necessity, it would be foolish to move at this time," he said. "It is not a change of strategy, but a pause while we wait to see what happens."

The company is in talks with its advisers to monitor when it is best to move and will update the market in October.

In April, Whitbread said it intended to refinance the group through issuing bonds to increase the level of leverage in the business, but no timetable had been set. "In the meantime, as part of our plan to increase the group's leverage, we will start on a market buy-back programme," Whitbread said. The buy-back is equivalent to 10 per cent of the company's share capital.

Whitbread, which sold off its David Lloyd Leisure fitness centres for £925m in January, reported a strong set of figures. Like-for-like sales at Premier Inn, which has enjoyed high growth, particularly in London, increased 11 per cent in the 24 weeks to 24 August. Like-for-like sales at Costa were up 7.2 per cent. Costa has been expanding rapidly and this month opened its 600th store, in Wimbledon, south London. Whitbread plans to open 2,000 Costas by 2010. The group's restaurant division, which comprises Beefeater and Brewers Fayre and is the slowest growing part of the business, has had an investment programme, with 41 sites remodelled so far this year. Mr Parker said he had no plans to sell off any other parts of the business.

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said: "This is a broadly comforting trading update, with like-for-like sales across the group making progress and management showing prudence in the face of the current credit crisis.

"While some analysts had expected a return of cash near to £900m to be announced with the statement, others suggested the mid-October interim results was a more likely time. Amid the credit crisis, management looked to have opted for a middle-of-the-road strategy."