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Gala's £550m plan to avoid a break-up

By Sarah Bridge for The Mail on Sunday
Updated: 05:19 EDT, 30 August 2009

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Gaming giant Gala Coral is to try to persuade its private equity backers to give up part of their stake to the company's debt-holders in a deal that would free up millions of pounds to invest in the company and avoid a break-up.

Weighed down: the company has a £2.7bn debt pile.

The group, which owns casinos and bingo clubs as well as the Coral bookmakers chain, is labouring under a £2.7bn debt pile.

But because of the restrictive terms of its loan agreements, it is unable to invest any money in its business despite having a £250m pot of cash in the bank.

Under plans being drawn up by its adviser, Lazard, an agreement is to be sought between the company's three private equity backers, Candover, Permira and Cinven, and a 50-strong syndicate of financial institutions, including Intermediate Capital Group and Park Square Capital, which owns £550m of Gala debt. The remaining £2bn of debt is held by Gala's banks and would be unaffected.

The debt-for-equity swap would ease the tight loan agreements and free up cash which the company is planning on using to invest in its online operations and its Italian business.

Talks between the parties are likely to start at the end of next month. It is not known what size the stake in Gala the debt-holders would demand.

A source said that if a deal was not reached, the management would be likely to quit the company and Gala Coral might have to be broken up and sold off. Gala declined to comment last night.

A £40m debt repayment is due next month but Gala says it will have no problem in paying it. However there have been

concerns over whether the group is on the verge of breaching its banking terms, which could lead to the group's debt-holders taking control of the company.

The Lazard plan could be seen as a preemptive strike but a source said that even if it did breach its banking terms it would not affect a possible deal.

Last week Gala, which has a 19,500-strong workforce, warned its bingo division that there would be redundancies in middle management.

A company spokesman said: 'The restructuring in our bingo division shows that management is taking control of the situation in an industry hit by a triple-whammy of Government legislation.'

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