Stonegate - comment

Reports have it that Apollo is nearing a £630m loan deal with Stonegate. We are disappointed that the original £1bn proceeds to reduce debt, has now morphed into a £600m (after fees) loan to an SPV. We are assuming that the SPV debt will not be an obligation of Stonegate, although the bonds are still effectively being layered in this transaction. The £400m of equity remains with Stonegate and could be sold later. Our analysis had assumed the best way of achieving £1bn of proceeds would be splitting the property assets from the operations, and this is still possible. At 650bp margin over SONIA, the cost is over 11%, we expect LTV will be under 60%. One question we have is whether the SPV will be able to support such high-cost debt, and whether the equity will become impaired.