Fertitta could get $ 250 million payout from Golden Nugget bond sales

Posted: Jan 7, 2022, 10:05 a.m.

Last update on: January 7, 2022, 10:32 a.m.

Earlier this week, Tilman Fertitta’s Fertitta Entertainment (FEI) announced the sale of $ 5.55 billion in corporate bonds. It appears the billionaire owner is wetting his beak to the tune of $ 250 million, according to sources with knowledge of the debt transactions.

Gold nugget
Golden Nugget boss Tilman Fertitta in a 2018 interview with CNBC. He could get a payment of $ 250 million on his company’s upcoming bond sales. (Picture: CNBC)

FEI, which controls the Golden Nugget land-based casinos and Landry’s restaurant empire, plans to sell $ 1.85 billion in seven-year leveraged loans and secured and unsecured issues of the same size. The goal is to refinance old debts at lower interest rates.

The company is also planning a payment of $ 250 million to Fertitta, its sole owner. Payment is believed to come from the billionaire who loaned his company $ 50 million of his own money two years ago. It was then that, during the darker days of the coronavirus pandemic, its casinos suffered several-month closures and its restaurants were unable to offer meals in person.

One of the major rating agencies is concerned about FEI’s future ability to reduce its debt.

We now believe that the company is unlikely to significantly reduce its debt in the future and we expect it to prioritize dividends and acquisitions ”, S&P said in a note Wednesday. “Distributions from shareholders represent a significant risk. “

The bond sales will increase FEI’s indebtedness by $ 800 million. But the company will have $ 1 billion in cash and a related entity will have another $ 1 billion in cash.

Win-win for Fertitta, bond investors

With interest rates low, now is a good time for unwanted issues to tap into financial markets, especially before the Federal Reserve hikes interest rates, which could start as early as March.

Likewise, because yields are low on safer debts, such as treasury bills and municipal bonds, there is an appetite for unwanted debt. The aforementioned FEI issues will almost certainly carry non-investment grade ratings. The S & P / LSTA US Leveraged Loan 100 Index – a widely followed indicator of leveraged loans – currently has a 30-day SEC yield of 2.84%. This is well below historical averages.

This index has a small allocation to “B” rated Golden Nuggets maturing in October 2023, with a coupon of 3.25%.

Golden Nugget operates five US casinos – two in Nevada and one each in Louisiana, Mississippi and New Jersey. Landry’s has over 500 restaurants through the Bubba Gump’s, Chart House, Del Frisco’s, Mastro’s and Morton’s brands, among others.

Reading Fertitta tea leaves

News of the planned bond sales comes less than a month after FEI and blank check firm FAST Acquisition (NYSE: FST) halted talks over an $ 8.6 billion merger. The deal would have paved the way for the casino and restaurant company to go public.

Like Bloomberg Reports, comments made by Fertitta during a call this week to potential bond investors imply that FEI could be worth more than $ 8.6 billion. For the year ending September 30, the company generated $ 822 million in earnings before interest, taxes, depreciation and amortization (EBITDA) on sales of $ 3.1 billion.

Like so many game companies, Golden Nugget increased its margins during the pandemic by phasing out less profitable equipment, such as buffets. Landry’s restaurants are also operating more profitably after changing menus and operating and downsizing.

FEI also owns $ 3 billion in real estate, according to Bloomberg.

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Elaine R. Knight