Betsson and Stride Gaming both raised capital this month, while GVC’s August refinancing was a big hit. Debt markets may seem friendlier to gambling, but igaming firms must still prove their worth.
By Scott Longley
When GVC announced in August it had secured a commitment with the UK corporate arm of Japanese bank Nomura to replace its existing – and expensive — €400 million term-loan facility from Cerberus with a much less punishing €250 million loan, the analysts applauded what they viewed as a significant landmark for the company.
The cash will be drawn down this coming February and along with cash from the company’s own resources, will be used to clear the Cerberus loan.
From that point it means GVC will see its interest rate drop from what analysts at Canaccord termed a “usurious” 12.5% to a much more friendly Euribor plus 2%.
Aside from the reduction of the interest rate on the debt, the importance of the new debt deal to GVC is clear. Originally taken out to fund the bwin.party acquisition, the terms of the Cerberus arrangement forbade GVC resuming dividend payments to shareholders.
According to Simon French, analyst at Cenkos, it was “arguably the most significant announcement from the group since the acquisition of bwin.party was completed, dispelling any unfounded concerns around the group’s business model and quality of earnings”.
It also had significance for the wider sector. The fact that it was cheaper, and that it was Nomura, raised hopes that other online gambling operators might find access to debt easier and potentially cheaper.
Indeed, since the GVC news there have been some notable agreements. Just recently in November, Betsson succeeded in raising SEK1 billion (£87 million) via an oversubscribed bond issue from investors in the Nordic region at a rate of Stibor (the Stockholm Interbank Offered Rate) plus 3.5%.
The Betsson success followed just two days after Stride Gaming’s announcement that it had secured an £8 million loan facility with Barclays Bank, which replaced an existing loan from a shareholder. It comes with an interest rate of Libor plus 3.6%.
But the difference in magnitude of the two deals points to the fact that neither is part of any great trend as far as the raising of debt is concerned. Where there are similarities is in their stated purpose.
Both Betsson and Stride suggested the financing would line each up for future potential acquisitions. According to the Betsson announcement, the cash gives the company “increased flexibility to act on acquisition opportunities”.
Not all good news
But if GVC, Betsson and to a lesser extent Stride provide evidence of lenders being willing to lend an ear to gambling companies seeking access to debt, it is not universally the case.
Nick Batram, head of investor relations at GVC, points out that GVC’s new debt deal should be seen as atypical for the industry.
“One thing is that every company is evaluated on its own merits,” he says. “We got a very good deal but we were never that leveraged anyway. We just needed cash very quickly (to complete the bwin.party acquisition) and that was why it was expensive.”
Where the industry did take comfort was in the idea that the Nomura deal represented a softening of the banks when it came to the regulatory footprint of the operator or supplier in question, and this may well be the case in the instance of GVC.
But other recent debt news points to Batram’s point about each individual case being considered on the business case as a whole.
Intertain’s recent travails are a case in point. The Toronto-listed company announced earlier this year that it was considering a London listing to more clearly align its corporate strategic focus with its UK-focused revenues.
As part of the plans detailed subsequently in September, the company said it would be raising a bond of £150m in order to help fund the pre-payment of earn-out obligations due to the previous owner of Intertain’s Jackpotjoy business, Gamesys.
However, by the time of the company’s third-quarter results statement in mid-November – and with no sign of a London switch being imminent – the company said that “based on advice and on feedback from certain debt market participants”, the company had switched from a potential bond deal to seek instead a £160m term loan facility.
As one analyst suggested, “it has obviously been knocked back” on its original plans.
The source suggested the likeliest reason for the refusal on the part of potential bond investors would be the terms of the Gamesys earn-out, though issues around the short-term trajectory of the UK online bingo market (the bonus tax and a potential ban on daytime TV gambling advertising) wouldn’t have helped the company’s investment case.
A question of leverage
As ever with any discussion on debt, the question comes down to leverage.
Intertain has debts of CAD$420m (£250m) so for all the recent quarterly revenue increases achieved by the various brands under its umbrella, including not just Jackpotjoy but also Vera&John and the Mandalay brands, it is the existing debt load that will weigh heavily in any funding discussions.
“It comes down to timing and circumstance,” says Batram. “You can compare and contrast Betsson and Intertain but the difference with the latter is that it is highly leveraged.”
The appetite for risk on the part of investors will determine the quantum of funding the industry will be able to source and there is no better example right now, perhaps, than with the story of ex-chief executive David Baazov’s bid to acquire his old company Amaya.
The first time around on the M&A merry-go-round, Baazov was famously able to enlist some very blue chip names to his roster of financiers, including the credit division of private equity giant Blackstone, Deutsche Bank, Barclays and Macquarie.
This time, Baazov's latest bid is reliant on two Hong Kong-based hedge funds, Head and Shoulders Global Investment Fund SPC and Goldenway Capital SPC.
Leaving aside the murkiness of the inclusion of a Dubai-based fund on the original release which later said it had never heard of Amaya, the names here are a long way from the pick of the financial cosmos that stumped up for PokerStars first time around.
At the very least it indicates a lessening of appetite on the part of any major investment names for what is essentially the same business it was just over two years ago.
However, times have changed. The gambling sector is now facing up to the challenges posed by the era of President Trump, Brexit and, if the recent gyrations in the bond market are to be trusted, the end of the era of cheap money.
This poses questions across the spectrum of the corporate world but for a gambling sector so keen on M&A, it makes the job of funding the deals just slightly harder. Not that the more ambitious ones will be deterred.
“Our view is that if there is a big deal to be done, then we will approach the shareholders and the banks,” says Batram. By implication, in such instances both would be more than receptive.