Stonegate - comment

The pub portfolio sale is in trouble; Stonegate may have to retain the equity in the portfolio, and the debt will be expensive. There are press reports of bids from Cerberus and Morgan Stanley for the portfolio SPV's £600m debt. To preserve cash the debt may have a PIK element, but the £400m equity will be progressively consumed by the PIK accrual. Selection of the pubs will gravitate towards those with better rental profiles and security value. TDR could buy the equity, but why commit capital to a structure with such expensive debt? Information is very patchy, but we will update when we see something concrete.