Gateway Casinos Could Tap Private Credit Market for $1.8 Billion

According to reports, Gateway Casinos in Canada is considering issuing $1.8 billion in private credit in order to reduce its current liabilities and distribute dividends to its investors.

The story was first reported by Bloomberg earlier today, according to unnamed people with knowledge of the situation. According to those sources, Morgan Stanley is assisting the casino operator in reaching out to potential lenders who would be open to extending the loan. The deal would rank among the biggest in Canada's private debt markets this year if it were approved. Due to its poor credit ratings, the gaming company may be seeking a non-public debt sale.

"In the private credit market, investors make loans to businesses and sometimes individuals who may have trouble accessing credit from banks or the public market,” according to Investopedia.

In November 2022, Moody's Investors Service raised its rating of Gateway debt from "Caa1" to "B3." This was the most recent rating change. According to Moody's, the "B3" grade is six notches above junk.

Previously, Gateway Casinos were thought to be for sale

About a year after rumors that the operator was contemplating an outright sale began to circulate, news broke that Gateway Casinos would be moving to private financing markets, but the deal never happened.

The gaming company was acquired in 2009 by Catalyst Capital Group, a private equity firm that manages assets of over $6 billion. In the provinces of Alberta, British Columbia, and Ontario, Gateway operates 31 gambling establishments. It was thought last year that Gateway was looking to sell for $2 billion, which is a little bit more than the $1.8 billion it might make from a bond sale.

Such a deal would be Catalyst's most recent move to monetize its ownership in the massive Canadian casino, if allegations that the gaming operator is going to private markets to raise money are true. In order to take Gateway public at a $1.15 billion valuation, hedge fund HG Vora partnered with Catalyst Capital and blank-check company Leisure Acquisition Corp. in December 2019. However, the deal collapsed in June 2020.

Rivals of Gateway Are Also Investing

One of Gateway's main competitors, Great Canadian Entertainment, advertised a $665 million term loan in the US earlier this week in an effort to borrow money for debt repayment with higher interest rates. Apollo Global Management (NYSE: APO) owns Great Canadian.

Regarding Apollo, the private equity firm demonstrates that there is precedent for businesses of that nature to distribute dividends to themselves from their ownership of casinos. Apollo requested Nevada authorities to authorize a $550 million deal from the Venetian on the Las Vegas Strip earlier this year.

The approval of Catalyst's plan to pay itself a dividend through the issuing of Gateway debt by Canadian regulators is still uncertain. The fact that the Apollo/Venetian dividend was financed by cash flow was another significant distinction between that proposition and the latter.