Gateway Casinos Could Tap Private Credit Market for $1.8 Billion

Canada’s Gateway Casinos is reportedly mulling the issuance of $1.8 billion in private credit to trim existing liabilities and pay its owners a dividend.

Bloomberg broke the news earlier today, citing unidentified sources familiar with the matter. Those sources said the casino operator is working with Morgan Stanley to contact lenders that might be interested in extending the financing. If approved, the transaction would be one of the largest this year in Canada’s private debt markets. The gaming company could be pursuing a non-public debt sale due to its low credit ratings.

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.

The most recent rating of Gateway debt occurred in November 2022, when Moody’s Investors Service upgraded its rating on the casino operator to “B3” from “Caa1.” The “B3” grade is six notches into junk territory at Moody’s.

Gateway Casinos Previously Considered Sale

News of Gateway Casinos potentially heading to private debt markets arrived about a year after speculation surfaced that the operator was considering an outright sale, but a transaction did not materialize.

Assuming reports are accurate that the gaming operator is heading to private markets to raise cash, such a transaction represents Catalyst’s latest attempt to monetize its stake in the Canadian casino giant. In December 2019, hedge fund HG Vora teamed up with Catalyst Capital and blank-check firm Leisure Acquisition Corp. to bring Gateway public at a $1.15 billion valuation, but the deal fell apart in June 2020.

Gateway Rivals Also Raising Capital

Earlier this week, Great Canadian Entertainment — one of Gateway’s principal rivals — marketed a $665 million term loan in the US to raise cash to pay down debt with higher interest rates. Great Canadian is controlled by Apollo Global Management (NYSE: APO).

Speaking of Apollo, that private equity firm shows there is precedent for such companies paying themselves dividends from casino ownership. Earlier this year, Apollo asked Nevada regulators to approve a $550 million from the Venetian on the Las Vegas Strip.

It’s not yet clear if Canadian regulators will approve Catalyst’s plan of paying itself a dividend via the issuance of Gateway debt. The other big difference between that proposal and the Apollo/Venetian payout was that the latter was funded with cash flow.