Permira, Candover and Cinven, the three buyout firms behind Gala Coral, a UK gaming business, are injecting £125 million ($248.8 million; €159.3 million) of additional equity to reduce the company’s debt burden.
Around £85 million will immediately go towards paying down debt, which amounts to £2.25 billion, while Gala has committed to paying increased interest on its senior debt of 0.5 percent and on mezzanine debt of 0.75 percent. The lenders are also due a one-off fee.
The syndicate of banks has agreed to stretch the covenants on the loans by 10 to 15 percent above Gala’s forecast ratios of debt to EBITDA, giving the troubled business extra room to manouevre, should its position worsen.
A source close to one of the buyout houses said: “We are fully behind the management. The investment demonstrates our commitment to and belief in the business. We are long-term investors and we are making sure the business is strong enough to weather any downturn.”
Gala told the UK newspaper Financial Times: “We have not breached and we are not forecast to breach. This is a prudent measure, which appears to have been well received.”
Gala, operator of nearly 1,600 betting shops, 165 bingo clubs and 29 casinos, has endured well documented troubles with the UK’s smoking ban hitting its bingo clubs and a rise in tax hurting its casinos.
Both SVG Capital, Permira’s biggest investor, and Candover Investments, a quoted trust, which invests in its namesake, wrote down their investments in Gala last month. Permira a later investor in the deal saw its investment diminish by half; Candover and Cinven reduced their valuations by a third.
However, one advisor cautioned Gala’s troubles were not necessarily symptomatic of a broader malaise in the buyout market. Will Allen, managing director at boutique investment bank Houlihan Lokey, said: “Different strategies and sectors will be affected in different ways, you can’t make a link and assume that what happens with one business will occur elsewhere. But where problems arise, equity injections into businesses by their private equity owners will be more common.”
He said when markets were more liquid firms could refinance deals into a lower cash-cost structure and get rid of amortising term debt or put in a PIK element. Those days are gone. He said the balance of power is with the banks.
“They won’t give waivers on the debt without getting something in return – a repricing, a fee for consent, or an equity injection.”