Gala Shareholders are to receive just £10 million for their investments into the Gaming giant. The report in the financial times states that the investors in Gala Coral will walk away from the debt-laden betting and bingo company into which they pumped £1.2bn of equity. It is described as UK’s biggest loss on a private equity deal.
The three main owners in the company, Permira, Candover and Cinven are expected to have to divide the small pay-off with other shareholders equally. Permira lost its entire £370m investment in Gala as a result of the smoking ban, tax effects and changes to regulations.

The other two major owners both injected £416m but got recouped £248m after refinancing and sales of part of their stakes to Permira. The three shareholders had to inject £125m into the company two years ago to avoid breaching banking covenants, which would have given the bank the opportunity to take ownership of the company.

Gala Coral will now become the largest company in Europe to be taken over by mezzanine debt holders. The mezzanine creditors will have to write off their own £550m of debt claims and in addition they will provide a further £200m in new funds. This will cut the debt to £1.75bn. The mezzanine creditors will own all of Gala’s equity.

Mezzanine capital, in finance, refers to a subordinated debt or preferred equity instrument that represents a claim on a company's assets which is senior only to that of the common shares. Mezzanine financings can be structured either as debt (typically an unsecured and subordinated note) or preferred stock.

It is suggested that although significant, the loss is manageable for the three owners as other investments have countered the bads news. The shareholders had been offered an equity stake of around 2% in the restructured business, but declined the offer and requested a cash payment is has been reported.

It was reported the new owners of Gala Coral include Apollo Management (25 per cent stake), Cerberus (18 per cent stake), Park Square Capital (8 per cent stake) and Goldman Sachs (5 per cent stake). An additional 20 per cent will be owned by US hedge funds York Capital, Strategic Value Partners, Varde Partners, Third Point and Sankaty Advisors.