Earlier this week, Tilman Fertitta’s Fertitta Entertainment (FEI) announced the sale of $5.55 billion worth of corporate bonds. It appears the billionaire owner may be wetting his beak to the tune of $250 million, according to sources with knowledge of the debt transactions.
FEI, which controls the Golden Nugget land-based casinos and the Landry’s restaurant empire, is planning to sell $1.85 billion worth of seven-year leveraged loans and secured and unsecured issues of the same size. The goal is to refinance older debt at more favorable interest rates.
The company is also reportedly planning a $250 million payment to Fertitta, its sole owner. It’s believed that payout stems from the billionaire loaning his company $50 million of his own money two years ago. That’s when, during the darkest days of the coronavirus pandemic, his casinos endured multi-month shutdowns and his restaurants were unable to offer in-person dining.
One of the major ratings agencies is voicing concern over FEI’s future ability to reduce debt.
We now believe the company is unlikely to meaningfully reduce debt in the future and expect it to prioritize dividends and acquisitions,” S&P said in a note on Wednesday. “Shareholder distributions are a significant risk.”
The bond sales will increase FEI’s debt load by $800 million. But the company will have $1 billion in cash hand and a related entity will have another $1 billion in cash.
Win-Win for Fertitta, Bond Investors
With interest rates low, it’s a good time for junk issues to tap capital markets, particularly in advance of the Federal Reserve raising interest rates, which could commence as soon as March.
Likewise, because yields are low on safer debt, such as Treasuries and municipal bonds, there’s appetite for junk debt. The aforementioned FEI issues will almost certainly carry non-investment grade ratings. The S&P/LSTA U.S. Leveraged Loan 100 Index — a widely followed gauge of leveraged loans — currently sports a 30-day SEC yield of 2.84%. That’s well-below historical averages.
That index has a small allocation to “B”-rated Golden Nuggets maturing in October 2023, with a coupon of 3.25 percent.
Golden Nugget operates five US casinos — two in Nevada, and one apiece in Louisiana, Mississippi, and New Jersey. Landry’s owns more than 500 restaurants across 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 arrives less than a month after FEI and blank-check firm FAST Acquisition (NYSE:FST) halted talks regarding an $8.6 billion merger. The deal would have paved the way for the casino and restaurant company to again go public.
As Bloomberg reports, comments made by Fertitta on a call this week to potential bond investors imply FEI could be worth more than $8.6 billion. For the year ending Sept. 30, the company generated $822 million in earnings before interest, taxes, depreciation and amortization (EBITDA) on sales of $3.1 billion.
Like so many gaming companies, Golden Nugget boosted margins over the course of the pandemic by eliminating less profitable amenities, such as buffets. Landry’s restaurants are also operating in more profitable fashion after altering menus and operating and trimming headcount.
FEI also owns $3 billion worth of real estate, according to Bloomberg.
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