LONDON (Reuters) – Britain’s biggest bingo club operator Gala Coral may end up in the hands of lenders if a proposal from a group of debt holders is accepted, two people with knowledge of the situation told Reuters.
The gaming company — owned by private equity firms Candover (CDI.L), Cinven and Permira — is in talks with lenders to avoid breaching the terms of its 2.7 billion pounds ($4.3 billion) of bank debt.
Mezzanine debt holders, who are owed more than 500 million pounds but rank behind about 2 billion pounds of senior debt, have put forward a proposal to restructure the finances of the company, which have been hit new government taxes and a smoking ban affecting customer numbers.
The company has around 150 bingo clubs, which employ 5,000 people and give it about 40 percent of UK bingo market, where about 3 million people play regularly. Gala Coral also has 1,600 betting shops across the UK.
Mezzanine lenders, including Intermediate Capital (ICP.L) and Park Square, would take over the company’s equity in exchange for “turning off” interest payments on the debt, the sources said.
Delaying interest payments on the mezzanine debt, which matures in 2015, would save the company several hundred million pounds over the lifetime of the facilities, they said.
As part of the plan, private equity owners Candover (CDI.L), Cinven and Permira, have been offered warrants which could give them a 40 percent stake if the company’s performance improved, the sources added.
The debt of senior lenders would be left in place, they said.
The offer is the latest of a number of restructuring plans put forward by lenders eager to agree a new financial structure for the cash generative company, whose revenues total about 100 million pounds a month.
In its last financial year 2007/08, Gala paid over almost 250 million pounds in interest and other financing costs.
Gala Coral, Candover, Cinven and Permira all declined to comment.
Gala Coral has not breached any of its covenants but lenders are looking to strike a deal before the end of the year to avoid the risk of a covenant breach.
“Time is of the essence to preserve value in the company,” one of the sources said.
In May 2008 the company’s shareholders injected 125 million pounds into the group to ease its finances. They still have the option to inject more cash into the company, the source said.
Gala Coral’s debts stem from 2005 when Gala Group acquired Coral Eurobet for 3.2 billion euros ($4.7 billion), backed by debt totalling 2.9 billion pounds.
All three firms have a roughly equal stake in the group and have invested 400 to 500 million pounds in the business throughout their ownership. But Candover and Cinven have recouped much of their money thanks to recapitalisations in 2005 and Permira’s equity investment.
Earlier this year both Candover and Permira wrote down the value of their investment in Gala to zero.
By Tom Freke and Zaida Espana
(Additional reporting by Simon Meads; Editing by David Cowell)