The owners of Gala Coral have agreed with its creditors to make a £125 million cash injection into the ailing business. It is the biggest UK leverage buyout so far to suffer financial woes due to the current economic climate.
Gala Coral has seen a downturn in trade specifically in its casinos and bingo halls since the smoking ban was introduced last summer. The decline in its bingo operation has caused Cinven, Permira and Candover, the private equity funds that own it, to restructure the debt of the business.
Gala Coral could find themselves to be in breach of banking covenants this year, as trading has decreased.
Gala Coral’s management team has held a meeting with the syndicate of banks in control of the company’s debts to negotiate amendments to the firm’s covenants. It has been reported that the investment bank, Lazard, is playing the part of an advisory role on the debt restructuring of the firm.
Apparently the management had the idea that £125 million of new equity should be pumped into the business, so around £83 million of senior debt could be paid off.
This leaves around £42 million, which will be placed on Gala Coral’s balance sheet. Lenders have been asked to change the interest covenants, in return for the equity injection.
It is thought that the banking syndicate have already informally agreed to the deal.
However, debt holders must go through the legal process of formally accepting the deal - a process which may take a couple of weeks.
Cinven, Permira and Candover will split the £125 million cash injection which they have agreed to put into the business, equally.
Gala Coral is widely regarded as the darling of British private equity, after being one among the most successful leveraged buyouts of the 1990s. The company has made numerous refinancing deals with private equity firms over the years.
The rise of Gala Coral has been overseen by John Kelly, now chairman, who recognised there was money to be made out of bingo. The group acquired Coral Eurobet in 2005 for roughly £2.2 billion in one of the biggest private equity backed deals of that year.
However, the company has run into trouble in the past 12 months or so. The smoking ban, higher tax rates, the restriction of slot machines and the downturn in consumer confidence have all had a negative impact on revenue.
Gala Coral have reported that after the third quarter of 2007, they have made a pre-tax loss of £128 million. This is 11 percent higher than 12 months earlier.
