Gala Coral in 540m debt swap talks
BINGO hall and casino operator Gala Coral is close to reaching agreement on a crucial £540m debt-for-equity swap, after months of flip-flopping about ways to secure a cash injection for the embattled company.
Gala, which in June drafted in investment bank Lazard to look at options to allow it to invest in the downturn, is in advanced-stage talks with investment groups
Intermediate Capital Group (ICG) and Park Square to swap its mezzanine debt for up to half of the equity in the business.
If a deal goes ahead, Gala’s private equity owners, a consortium of Candover, Cinven and Permira, will see their combined stake severely diluted.
The news comes after suggestions that Gala, though a cash-generative business, could be at risk of breaching its banking covenants before the end of the year after struggling with its £2.5bn debt pile in the downturn.
It is expected to use the breathing space on its debt to free up £250m of cash on its balance sheet and invest further in the company.
The group, which has recently been forced to sell off a raft of bingo halls, is understood to have considered a wide range of alternative options, including selling off part of the business, bringing in a new investor or netting a further cash injection from its existing investors.
Candover, Cinven and Permira last year injected a total of £125m into Gala to provide more headroom on its debt, but have since had to write down their investments in the group to zero.
ICG and Park Square, which are being advised by Rothschild, are expected to finalise the deal before the month is out.
Gala is now in its fourth period of private equity ownership, after being bought out from leisure conglomerate Bass in 1997.
JOHN MANSER
CHAIRMAN OF INTERMEDIATE CAPITAL GROUP
UPPER-end UK buyout specialists Investment Capital Group (ICG) and Park Square together hold nearly half of Gala Coral’s mezzanine debt.
ICG is chaired by John Manser (pictured) who also holds positions as chairman and deputy chairman of property groups Shaftesbury and Colliers. He is also a non-executive director of pub group SAB Miller. ICG’s chief executive is Tom Attwood, who joined the firm in April 1996 after eight years as a director of James Capel & Co.
ICG was set up in 1989 and has since invested in transactions worth in excess of €9.6bn (£8.8bn).
In July this year, it tapped investors for £351m in a heavily-discounted, seven-for-two rights issue at a price of 121p per share, in a deal led by JP Morgan Cazenove. ICG said at the time that it would use the proceeds to take advantage of opportunities in the ailing buyout market.
Rival Park Square Capital was set up in late 2004 by founding partners Robin Doumar and David Cottam.
Doumar, now the firm’s managing partner, was formerly a 15-year veteran of Goldman Sachs, where he held positions as head of workouts and restructurings, head of European leveraged finance and head of European mezzanine in the principal investment area.
Cottam was previously head of international equity capital markets at BNP Paribas and also spent time at Goldman as a senior member of the leveraged finance team in London.