The UK’s biggest pubs and bars group has warned that there is no guarantee that it can continue as a going concern, as it struggles to refinance a £2.2bn debt mountain.
Stonegate Pub Company, which has a network of more than 4,400 UK pubs and bars including the Slug & Lettuce and Be At One chains, said it had not yet agreed new loans to replace debt due for repayment in June 2025.
While talks with potential lenders are understood to be under way, the failure to agree a new facility by the time the company published its annual report left it with no choice but to issue an alert about its financial position.
“Since the refinancing plans haven’t been executed, there is an indication that a material uncertainty exists that may cast significant doubt on the company and group’s ability to continue as a going concern […],” Stonegate said.
It said this meant the group “may be unable to realise their assets and discharge their liabilities in the normal course of business”.
Stonegate is domiciled in the Cayman Islands and ultimately owned by TDR Capital, a private equity firm that also owns Asda.
It became the UK’s largest pub group with the £1.3bn purchase of Ei Group (formerly Enterprise Inns) in 2019, a deal that included £1.7bn of debt and completed just days before the Covid-19 pandemic triggered a series of nationwide lockdowns that hit the hospitality trade particularly hard.
The enlarged business has been trying to refinance its debts since at least February, when Bloomberg reported that it had appointed bankers at Evercore and lawyers at Kirkland & Ellis to explore its options.
But despite Stonegate’s vast scale, it has yet to do so, amid tough conditions in debt markets and for hospitality groups in particular.
Pubs, bars and restaurant firms have seen their margins badly squeezed between the twin pressures of rising costs and faltering consumer demand as customers’ rein in spending due to the cost of living crisis.
The result has been a wave of pub closures and insolvencies in the craft brewing sector.
The sector’s travails, coupled with the high interest rate environment, is understood to have made it far harder for major hospitality players such as Stonegate to refinance their debts.
Stonegate has more than £3bn of debt in total and paid more than £300m in finance costs last year, including £235m of interest on its loan notes. It borrowed £638m against about 1,000 freehold properties in December but the rating agency Fitch said in January that it may have to downgrade Stonegate’s outlook if it cannot refinance £2.2bn of loans.
Stonegate’s chief executive, David McDowall, who joined from BrewDog last year, said: “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.
“Our performance gives me real confidence in the future and excitement in seeing our strategy come to fruition.”
He pointed to the group’s recent trading performance in the first quarter of this trading year, showing improved revenue and profitability.
In the previous year, to 24 September 2023, the group’s losses nearly doubled from £130m to £257m despite a £100m in rise in revenue to £1.7bn. Its operating profits were wiped out by costs, including a £178m negative revaluation of its brands and £300m in finance costs.
McDowall pointed to an “asset optimisation plan which makes sure we have the right pub in the right location, further profit improvement initiatives, and above all our efforts to continue to support the Great British pub”.
“With a summer of sport on the horizon, and the Euros and T20 World Cup fast approaching, we are looking forward to building on this momentum in the months ahead,” he said.
Stonegate faced negative publicity last year when it decided to impose “dynamic pricing”, charging punters 20p more for a pint during busy periods.
It was also named and shamed by the Department for Business and Trade for failing to pay more than 3,000 workers minimum wage due to what it said was a misunderstanding over how the cost of uniform was split between the company and staff.
The company said the underpayment was unintentional and that it took “immediate steps” to reimburse staff.
