One of Canada’s largest casino operators, Gateway Casinos & Entertainment, plans to issue private debt in order to obtain CAD 1.8 billion ($1.3 billion). According to insiders cited by Bloomberg, this action will allow the corporation to pay dividends to shareholders while refinancing its current debt. The offer, which is being arranged by investment company Morgan Stanley, has the potential to rank among Canada’s largest private debt deals this year if it is successful.
In order to obtain favorable conditions for Gateway Casinos, which is mostly owned by Catalyst Capital Group, Morgan Stanley is looking into a variety of financing options. Depending on input from possible lenders, the debt structure may change, enabling flexibility in lending terms and quantities. Although the plans didn’t work out, Catalyst Capital, which has been managing Gateway’s operations since 2009, even contemplated selling the business last year.
Credit Constraints Push Gateway Toward Private Debt Market
Gateway’s path to private credit reflects the challenges it faces in traditional capital markets due to a “B3” credit rating from Moody’s. Although Moody’s improved this rating in November 2022, it remains within the “risky” category, complicating Gateway’s access to public financing. Private debt markets, often supported by non-bank investors like hedge funds and private equity firms, provide financing options for companies facing limited access to conventional loans.
With the U.S. private credit market valued at around $1.7 trillion, non-bank lending has become increasingly attractive as lenders seek opportunities that bypass traditional syndicated markets. Private lenders, eager to capture unique deals, have recently leaned into riskier loans, evidenced by high-profile financings like Pure Fishing’s recent $750 million loan.
Gateway’s debt-raising effort aligns with a broader industry trend among Canadian gaming companies. In a recent example, Great Canadian Gaming Corporation, owned by Apollo Global Management, launched a $665 million term loan in the U.S. leveraged loan market. Great Canadian’s restructuring plan is geared toward reducing interest expenses, a strategy Gateway may also employ by tapping private debt markets for better terms.
Catalyst Capital has already looked into methods to profit from its Gateway investment, most notably through a 2019 proposal to merge with Leisure Acquisition Corp. and go public. At that time, the estimate was around $1.15 billion, but the endeavor finally came to a standstill. Catalyst’s increased efforts to extract value from Gateway’s 31 casinos—which are spread across British Columbia, Alberta, and Ontario—are reflected in this most recent private financing strategy. If approved, the funding will represent Catalyst’s most recent attempt to improve Gateway’s standing in the market and financial stability.
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