Gala Coral Struggles to Fulfill Its Debt Responsibilities

On June 16th, 2009, Gala Coral, the private equity-owned gaming organization, is facing another set of regulatory questions just as the debt-laden group struggles to fulfill duty hikes imposed on its bingo facilities and slot machines. Gaming Industry regulator the Gambling Commission is expected later this month to advise culture minister Gerry Sutcliffe to carry out further study into links between wagering shop roulette machines and gaming addiction. A study conducted two years ago found out that one in nine gamers on the machines were gaming addicts.

The move will add to the growing uncertainty for all bookmakers including Gala Coral, which was one of the first to recognized the potential of roulette slot machines. Gaming analysts are speculating that Chancellor Alistair Darling may see the machines as a good target for future tax increases. The commission has also privately informed the ministers that it believes Gala Coral and other bingo operators have persuaded local authorities to modify licensing rules in order to improve the number of five hundred pounds jackpot slot machines allowed in each club.

Artificial divisions within clubs have been utilized to acquire multiple licenses, improving the number of lucrative slot machines that they are permitted to operate. The Gambling Commission has repeatedly released guidance on how local officials should manage multiple license applications, but private concedes that it lacks power to enforce its rules. Gaming regulators are not believed to have singled out Gala Coral but the group is seen as one of the most vulnerable to any regulatory change because it is already suffering from servicing debts of 4.4 billion pounds.

Gala Coral is the only business in Great Britain to operate in all three high street gaming categories-bingo facilities, casinos and wagering shops-all of which have been affected by regulatory and tax increases in recent years. Combined with changes in consumer spending, these have convinced its private equity owners Permira, Cinven and Candover to each write down the value of their investment to zero.

In May 2008, Gala Coral received a 124 pounds cash injection from the three organizations and renegotiated some of its credit covenants. But it must repay 80 million pounds of debt by September 2009 this year, with a further 150 million pounds falling due in the following twelve months. The group denies that it is preparing for another restructuring, denying rumors that it is seeking to demerge bookmaker Coral, the division that produces almost 2/3 of operating profit. The group is cutting costs and has cancelled its membership to trade groups like the Bingo Association, the British Casino Association, the Association of British Bookmakers and the Remote Gambling Association.

At year-end last September 2008, Gala Coral had 4.4 billion pounds of loans, of which 1.6 billion pounds was "investor-funded debt". It made an operating profit of $362 million last year. Since then, the business has been hit by tax increases on bingo and slot machines introduced in April's budget, with the impact expected to reach into several million pounds.

Tuesday, 07 July 2009
Cindy Alfonso