Gala given a £125m helping hand
The private equity owners of Gala Coral, Britains largest privately-owned company, have agreed with its creditors to inject £125m into the troubled business. It is the biggest UK leverage buyout so far to suffer financial stress as a result of the current downturn.
Gala, which operates 1,566 Coral betting shops, 165 bingo halls and 31 casinos, has seen its business decline following the introduction of the smoking ban. The downturn in the bingo business, which has also hit a number of other smaller bingo club operators, has forced Cinven, Permira and Candover, the private equity funds that own it, to restructure the businesss debt.
Comment: The balls have fallen unkindly for Gala
As trading has deteriorated, the company has realised it may be in danger of breaching certain banking covenants this year.
Gala Coral has seen its business decline following the introduction of the smoking ban
Yesterday, Galas management held a secret meeting with the syndicate of banks that controls its debt to discuss amending the companys covenants, according to sources familiar with the matter. Investment bank Lazard is thought to be advising the company on the debt restructuring.
Sources said the management had suggested that £125m of new equity should be injected into the business so that about £83m of senior debt can be paid off.
It is understood that the remaining £42m will be placed on Galas balance sheet. In return for the equity injection, lenders have been asked to agree a change to the interest covenants. This is designed to provide what was described yesterday by one observer as greater "headroom" for the company going forward.
It is understood the banking syndicate have informally agreed to the deal.
However, debt holders still have to go through a legal process whereby they have to formally accept the offer, which could complete in a couple of weeks.
advertisementThe three private equity funds will split equally among themselves the £125m cash injection which they have offered to put into the company, said sources.
Gala is often cited as the darling of British private equity, having been one of the most successful leveraged buyouts of the 1990s. The group has passed through numerous private equity hands in a series of increasingly ambitious refinancing deals.
The companys growth was spearheaded by John Kelly, now chairman, who spotted the opportunity of building a large scale business out of a small ticket, high volume operation such as bingo. In 2005 Gala bought Coral Eurobet for about £2.2bn in what was one of the largest private equity backed deals of that year.
As well as the smoking ban, the companys performance has also suffered from higher tax rates, the closing of a lucrative loophole in slot machine regulation and declining consumer confidence.
Results for the year to September 2007 showed the company posted an annual pre-tax loss of £128m, 11pc higher than the previous year.
2008-04-25
