Gala Coral in 540m debt swap talks

BINGO hall and casino operator Gala Coral is close to reaching agreement on a crucial &pound;540m debt-for-equity swap, after months of flip-flopping about ways to secure a cash injection for the embattled company.<br /><br />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 <br />Intermediate Capital Group (ICG) and Park Square to swap its mezzanine debt for up to half of the equity in the business.<br /><br />If a deal goes ahead, Gala&rsquo;s private equity owners, a consortium of Candover, Cinven and Permira, will see their combined stake severely diluted.<br /><br />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 &pound;2.5bn debt pile in the downturn.<br /><br />It is expected to use the breathing space on its debt to free up &pound;250m of cash on its balance sheet and invest further in the company.<br /><br />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.<br /><br />Candover, Cinven and Permira last year injected a total of &pound;125m into Gala to provide more headroom on its debt, but have since had to write down their investments in the group to zero.<br /><br />ICG and Park Square, which are being advised by Rothschild, are expected to finalise the deal before the month is out.<br /><br />Gala is now in its fourth period of private equity ownership, after being bought out from leisure conglomerate Bass in 1997.<br /><br /><strong>JOHN MANSER<br />CHAIRMAN OF INTERMEDIATE CAPITAL GROUP<br /></strong>UPPER-end UK buyout specialists Investment Capital Group (ICG) and Park Square together hold nearly half of Gala Coral&rsquo;s mezzanine debt.<br /><br />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&rsquo;s chief executive is Tom Attwood, who joined the firm in April 1996 after eight years as a director of James Capel &amp; Co.<br /><br />ICG was set up in 1989 and has since invested in transactions worth in excess of &euro;9.6bn (&pound;8.8bn).<br /><br />In July this year, it tapped investors for &pound;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.<br /><br />Rival Park Square Capital was set up in late 2004 by founding partners Robin Doumar and David Cottam.<br /><br />Doumar, now the firm&rsquo;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.<br /><br />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.