McGrathNicol Report, page-181

If the reports of the debt sales are accurate as reported in the AFR, what has changed is the relationship between SGH & some of its lenders. I think everyone can agree with that.

I've contended that 'the banks' (Westpac and NAB), who are reported or at least speculated to be the largest participants in the syndicate, to have a reasonably strong relationship with S&G. To the extent this relationship was and continues to be valuable to both parties (certainly to S&G), there was always some scope to refinancing their component of the first tranche of debt due in May 2018 if the PIP has shown sufficient progress. I don't think we have any read on PIP progress yet, since FY 16 results, but 1H should give a good indication of how the business is looking. Maybe we were given a glimpse of this today with the reported excerpt or paraphrased comment from the McN report.

What has changed IMO is that at least one of the new lenders has a history of buying cheap debt and a willingness to convert into equity (if given the option). Not all purchasers of stressed or distressed debt have this appetite. I was also surprised at the follow on speed to which Macquarie offloaded their slice to DB, albeit at a smaller discount to Citi (that's a positive right). DB is a mammoth company so it's unclear by all reports on which division bought this debt and why.

So the question I was asking myself was given the current unknown around S&G's future performance between now and the first semi-amortisation debt repayment (which I think you'll find is H2 CY17, not May18), how likely is it that S&G's desire to refinance its debt will fall on deaf ears.? How likely is it that it can approach other lenders to refinance?

Unfortunately I don't have any answers to those questions and am unable to quantify the extent of the upside that remains for SHs relative to that risk.

I have been fortunate to have recovered all of my SGH losses (~40%) in other stocks, and I guess that has partially motivated my decision to sell today. Still plenty of clearly understood upside in those stocks as well.

Having said that, I'm really excited to see what the 1H 17 results yield and am fully cognisant that if they surprise on the upside I will miss out on the ensuing upside until I make my re-entry.