(Bloomberg) Britain’s Largest Pub Firm Gears Up For £2 Billion Debt Talks

2024-02-26 16:01:42.744 GMT

By Giulia Morpurgo, Sabah Meddings and Irene García Pérez

(Bloomberg) -- Stakeholders in the UK’s biggest pub
operator are gearing up for talks on how to address its more
than £2 billion ($2.5 billion) in debt coming due next year. 
Stonegate Pub Co., its owner TDR Capital and its senior and
junior creditors will discuss how to tackle the upcoming debt
maturities, said people familiar with the matter, who spoke to
Bloomberg on the condition of anonymity. 
The company and its sponsor have brought in bankers at
Evercore Inc and lawyers at Kirkland & Ellis LLP to advise on
their options, said the people. Stonegate could slash a part of
its debt and then address the remainder, creditors say. 
“We have been very clear that we continue to work towards
achieving our long-term balance sheet goals, with the successful
refinancing of a portion of our estate in December marking a
significant strategic step towards this,” a Stonegate
representative said in an emailed comment to Bloomberg,
referring to efforts last year to lighten its debt load. 
A spokesperson for TDR declined to comment. Evercore and
Kirkland & Ellis didn’t immediately respond to requests for
comment. 
The pub operator, which has in its portfolio 4,500
establishments across the UK, has had to navigate a series of
challenges over the last few years. The coronavirus pandemic
shuttered pubs for several months, while pent-up demand
following the reopening was subdued as inflation ate into
consumers’ disposable incomes. Higher interest rates have
meanwhile increased borrowing costs for issuers. 
Read more: Britain’s Biggest Pub Chain Seeks to Raise Debt
as Sale Falters
After unsuccessfully attempting to sell a portfolio of
1,000 pubs, Stonegate last year moved them into a special
purpose vehicle with Apollo Global Management Inc. providing
around £630 million of new debt, Bloomberg News
reported.Existing bondholders might be allowed the opportunity
to invest in the new funding to Stonegate’s special purpose
vehicle as a sweetener.
While bringing in new cash, the Apollo funds also increase
the interest bill for Stonegate: the loan has a margin of 635
basis points over the Sonia benchmark.
The firm is sitting on over £3 billion in liabilities
accumulated since its acquisition by TDR in 2010, which seized
the opportunity in a period when accessing funding was
relatively cheap. 
Read more: London Pubs Lean on Happy Hour to Lure Bankers
to Quiet City
Now, due dates are coming into view. Stonegate has about
£2.2 billion of secured bonds due in July 2025. The company also
has over £100 million due in amortization payments under its
Unique Pub Finance Co. securitization structure between now and
September next year, according to data compiled by Bloomberg.
The last tranche under Unique is due between 2031 and 2032. 
“It’s a matter of cash flow and making sure you can afford
your capital structure going forward, create a cushion for your
operations,” said Wolfgang Felix, founder of independent special
situations firm Sarria. “Even after the Apollo transaction,
there won’t be a lot of room in the financials with the current
debt levels and as a creditor, you want to be confident that the
future instruments are covered.” 
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Stonegate Creditors
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The holders of the secured debt — which include funds Arini,
King Street Capital Management L.P. and Sculptor Capital
Management Inc. — have organized in a group advised by bankers
at Jefferies Financial Group Inc and law firm Willkie Farr &
Gallagher, said some of the people familiar.
The company also has junior creditors, whose claims have a later
maturity and aren’t backed by collateral. These include Albacore
Capital LLP — which provided a payment-in-kind facility to one
of the holding entities of Stonegate — and the holders of £400
million term loans due in 2028, among whom is Canyon Partners
LLC, said some of the people familiar.
The holders of the second lien loans are consulting with Milbank
LLP for legal advice, said the people familiar.

Spokespeople for Arini, Jefferies, Albacore, King Street and
Sculptor declined to comment. Representatives for Willkie Farr
and Canyon Partners didn’t immediately respond to requests for
comment.
*T


--With assistance from Laura Benitez.