Permira chips away at portfolio leverage

The private equity firm is nearing a deal to reduce the debt burden on fashion house Valentino by €730m, while talks continue with lenders to gaming group Gala Coral.

Permira is close to buying a slice of the debt relating to its portfolio company the Valentino Fashion Group for a significant discount, a source close to the situation has confirmed.

Valentino is 60 percent owned by Permira, one of Europe’s largest private equity firms, with the remainder owned by the Marzotto family and some other minority co-investors. Permira and the Marzotto family are together set to acquire approximately €730 million of Valentino’s debt from lender Citigroup.

Currently, Valentino has around €2.2 billion in debt. If the deal is successful, it would leave just two lenders in the syndicate: Italian banks UniCredit and Mediobanca.

Gala Coral: negotiations could 'drag on'

The two buyers are understood to be paying between €200 million and €300 million for the debt, according to a report on newswire Dow Jones, confirmed by PEO.

At the same time Permira is embroiled in talks regarding the future of its gaming and betting group Gala Coral, which has a debt burden of £2.6 billion. Permira co-owns the group with private equity peers Candover Partners and Cinven.

Gala Coral has faced a taxing mix of conditions over the last two years. Aside from the widespread effect of the economic downturn on consumer spending, the group’s bingo halls suffered in 2007 from the UK’s smoking ban and increased taxes. Earlier this year the group said it would eliminate up to 300 jobs.

US private equity firm The Blackstone Group is proposing to inject £300 million of into the group, in exchange for 75 percent of the equity. Blackstone will see its offer of new money weighed against an alternative proposal from a consortium of mezzanine lenders led by Intermediate Capital Group and Park Square Capital. The mezzanine consortium is proposing a £540 million debt-for-equity swap, which would “wipe out most” of the incumbent financial sponsors’ equity stakes.

Negotiations at Gala Coral are likely to “drag on for quite a while”, given the disparity of stakeholders involved, said one source with knowledge of the situation.

All parties mentioned were either unavailable or declined to comment.