UK - Gala's junior lenders could sell off debt

Deborah
21 January 2010

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Junior lenders of Permira-, Cinven- and Candover-backed Gala Coral, the British gaming company, are reportedly considering selling off their debt rather than pursuing a debt for equity swap that would see them gain a considerable stake in the beleaguered business.

The move is the latest development in a restructuring process that has taken the better part of a year to agree.

It has been reported that mezzanine debt holders Park Square and ICG have written to other mezzanine lenders to inform them of their plans. The two lenders, which own 45% of the mezzanine debt, are understood to already have initiated plans to establish a market price to sell the £180m of debt on the secondary market. They are reportedly looking to sell at around 70% of the face value of the loans.

A decision on the process is expected next week.

Earlier this month, Gala's senior lenders proposed an alternative restructuring deal that would see mezzanine creditors inject at least £150m into the business. The request came after the proposal that junior lenders would swap £540m of debt for a majority stake in the company had already been largely agreed upon.

The move to sell part of the mezzanine debt could be a way for Park Square and ICG to assess on what terms they would participate in a capital raising for the business. One option is that the two mezzanine creditors team up with Apollo, which holds 15% of the debt, to underwrite the fresh equity injection.

Apollo and Blackstone had also put forward counter proposals last year to inject at least £250m into the business for a majority holding. The negotiations are now expected to last until the end of February.

Gala Coral operates almost 2,000 licensed betting offices, 148 bingo clubs and 27 casinos. Its 2009 EBITDA figures fell 7% to £340m.

In September 2005, Permira acquired an equity stake in Gala, then already owned by Candover and Cinven. The deal saw Permira invest £200m into the company, which was valued at £1.9bn. Lehman Brothers, Royal Bank of Scotland and ICG underwrote a refinancing of the company's debt.

Candover and Cinven acquired Gala in a 2003 tertiary buyout that valued the bingo and casino group at £1.24bn. Each private equity investor committed £274m for equal stakes in excess of 40%.