NEW YORK, April 6 (LPC) - Texas businessman Tilman Fertitta is after US$250m from US leveraged loan investors to shore up liquidity at a time when the novel coronavirus has forced the hospitality magnate to cease operations at his casinos and restaurants, according to sources familiar with the transaction.
The US$250m in incremental debt is being attached to an existing term loan that will mature in 2023 for Fertitta’s restaurant and gaming company Golden Nugget, and if successful, the outstanding facility will swell to more than US$2.5bn, according to data from Refinitiv LPC.
Jefferies, a long-standing lender to Fertitta’s businesses, is pitching the transaction to investors at an eye-watering spread of 1,400bp over Libor and a discount of 96 cents on the dollar, according to banking sources. The incremental loan, which is open to both new and existing Golden Nugget lenders, is structured with two years of call protection, an investor-friendly feature typically found in the high-yield bond market and less so in leveraged loans, sources said.
Fertitta is offering lenders some hefty concessions in exchange for their participation in a loan for a business that is suffering from decreased cash flow brought on by the pandemic. The businessman’s Golden Nugget casino is shut, steakhouse restaurant operator Del Frisco’s has closed in-house dining and his National Basketball Association (NBA) franchise the Houston Rockets is benched after the NBA suspended this season.
Moody’s Investors Service downgraded the Golden Nugget to B3 from B2 and cut its first-lien term loan to B1 from Ba3 due to the expectation that earnings will deteriorate from the closed restaurants and casinos, according to a March 24 report from the ratings agency.
“Never did I think this would be the issuer to kick off the loan market, but here we are,” said one investor.
A spokesperson for Landry’s did not respond to a request for comment, while a spokesperson for Jefferies declined to comment.
The transaction, under the borrower Landry’s Finance Acquisition Co, is the first to hit the broadly syndicated market since March 11, when Service Logic raised US$140m.
Despite relief among market participants that a new transaction had emerged, some were quick to downplay the idea that Landry’s incremental deal was a sign that the US syndicated leveraged loan market was once again open for business.
“(Landry’s deal) will not be a harbinger of the loan market re-opening. With secondary levels still, on average, in the mid-80s, accounts will likely continue to focus their attention on buying names that they know at historically attractive levels,” said a syndication manager.
Indeed, the outstanding term loan for Golden Nugget was quoted at an average bid of 74-76 cents on the dollar in secondary trading on Monday, up from 60-62 cents on March 23, according to three sources.
And the LPC 100, a cohort of the 100 most liquid US leveraged loans, was averaging 87.8 cents on Monday, up from a low of 77.9 cents on March 23, according to Refinitiv data.
With lenders already on the hook for roughly US$2.5bn in debt under this Golden Nugget loan, sources reckon this latest incremental will be mainly sold to existing holders of the loan. And despite the facility trading in stressed territory, the call protection and small size of the add-on is palatable enough to an investor base familiar with the credit history of Fertitta’s companies and his solid track record as a business owner, sources said.
“If anybody can operate around the headwinds facing the restaurant industry, my money would be on Tilman,” said a second investor. “He knows every little detail about his business to make sure his empire stays afloat. He has operated in many economic cycles, so I think there is comfort there.”
And at 1,400bp over Libor, investors estimate a juicy yield-to-maturity of this debt at roughly 18%, according to two sources.
Lenders have until Thursday to commit to the terms of the US$250m transaction. This will be the third incremental deal attached to this loan in the last seven months.
In February, Golden Nugget wrapped up a US$200m deal to fund a shareholder dividend. The casino operator offered the debt at just 250bp over Libor with no discount and at the same time, it repriced the existing US$2.39bn it had outstanding on the loan to 250bp from 275bp over Libor.
Last October, Golden Nugget again appointed Jefferies to complete a US$300m loan to support its acquisition of Del Frisco’s Double Eagle Steakhouses and Del Frisco’s Grilles from investment firm L Catterton. (Reporting by Aaron Weinman and David Brooke. Editing by Kristen Haunss and Michelle Sierra.)