Gala Coral, the gambling group, is seeking the consent of its lenders to sell up to £600m of junk bonds, as well as to lift its capital expenditure.
Gala is paying its banks £3m in fees in order to win more than two-thirds of their support for the bond sale, which would be rated below investment grade – known as high yield or junk – and would be used to repay senior debt.
The banks have until July 21 to approve the request, which also seeks flexibility on a covenant linked to capex, to allow Gala to increase investment by £10m a year.
Under the terms of its debt restructuring, Gala will have up to £70m a year to invest in capital expenditure. The timing of a bond issue, should it go ahead, would be subject to market conditions, but would have to be issued in the next nine months and would be for between £300m and £600m, said people close to Gala.
“The company believes that the issuing of a high-yield bond in the right market conditions would be in the interest of both shareholders and senior lenders,” said Neil Goulden, Gala executive chairman.
Goldman Sachs is advising Gala on the consent process.
The bond would rank behind the banks in the order of priority of lenders.
Gala has been considering a bond issue for several months, but has been waiting for the completion of its £2.5bn debt restructuring, which was finalised last month. The restructuring freed Gala from £588m of mezzanine debt, which is being written off in exchange for giving creditors control of the business. The new shareholder group will be led by Apollo Management, Cerberus, Park Square Capital and York Capital, which are providing £200m to repay debt.
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