Bank explores possibility of Gala Coral break up

Royal Bank of Scotland - itself in receipt of UK government financial assistance - has reportedly been sounding out leading investors in the Gala Coral land and online gambling group on selling off an unspecified part of the GBP 2.7 billion debt-burdened group to ease its situation, reported the Observer newspaper this week.

RBS's direct exposure to the gambling group's debt is apparently relatively small, but the bank acts as agent for the senior debt holders involved and therefore has influence. The Observer report reveals that the bank made a presentation to these clients, inviting them to take a stake in the gambling group or to bid for any of its bingo, casino, betting-shop or online divisions.

The introduction to the presentations read: "The [Gala Coral] company needs to address its debt burden and is considering a number of options to raise cash. Candover and Permira are financially strained and unlikely to be willing to inject more equity." The conclusion mentions the alternative to further investment being found of spinning off "one of the company divisions."

The gambling group, which is currently facing loan repayment deadlines of GBP80 million by September and GBP150 million by 2010, apparently had no knowledge of the bank's action and had not given its consent to the move. Gala Coral is jointly owned by private equity houses Candover, Cinven and Permira, and the company has been active in trying to raise GBP 200 million to solve its immediate debt situation and provide funds. Options being considered are reportedly debt-for-equity swops, or persuading current investors to increase their holding.

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