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Debt Restructuring Deal To Rejuvenate Ailing Gala Coral

October 10th, 2009

In a major equity-for-debt switch Gala Coral could wipe out a massive £540 million debt from its heavily financially leveraged balance sheet. It was reported in The Guardian that the company was in negotiations with their bankers and lenders to wipe out £540 million worth loans from their balance sheets in exchange for a significant stake in the business. A large portion of their cash reserves were tied up in fixed financial commitments thereby severely hampering the risk appetite of the company to begin new ventures and expand their current operations. With the latest deal coming through, the company will free up cash reserves to the tune of more than £200 million which the group has in the bank.

Gala Coral had engaged their investment bankers Lazard in June to study the possibility of a possible debt restructuring or a debt-equity swap to resolve the liquidity crisis in the company. Three venture capital firms Candover, Cinven and Permira injected more than £125 million into the equity base of the group last year; this amount was written to naught this year due to mounting debts and significant decline in earnings. The three equity firms jointly own the ailing gaming conglomerate. Under the latest agreement they have agreed to give up half their total stake which will in turn be absorbed by the lenders as represented by two investment banks, Intermediate Capital and Park Square. They have also devised a brand new business plan which targets to repay another £550 million from its debt commitments over the next three years and repay a further £500 million in debt servicing charges during the same time.

Industry experts believe that this could probably result in the Gala Coral group being split up in the long run. With the stake getting further diluted and multiple owners now stepping in, the individual owners could give up their share to the business in exchange for the best offer received from interested parties. Even though Gala Coral have attempted to preserve the group in its present form, even with its debt restructuring, the new owners could decide otherwise and theoretically, the group could be split into several bits.

Gala Coral owns and operates Gala Bingo which is one of UK’s biggest bingo brands in the online and land based segments. The group owes more than £2.5 billion to its creditors, supported by net earnings of £360 million. The group’s loan agreement clearly stipulates that the group must keep its debts within 7.25 per cent of their total earnings; since they have not been able to match this clause the group has been unable to access their cash reserves of £200 million. These cash reserves have been mainly derived from the recent favorable judgment the group received from the Appellate authority regarding excess VAT payments.

Debt Restructuring Deal To Rejuvenate Ailing Gala Coral

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