Golden Nugget owner offers record 15% loan rate to save his companies

In an attempt to keep his casino and restaurant empire afloat amid the coronavirus pandemic, businessman Tilman Fertitta is looking to raise more debt by offering potential lenders an interest rate of at least 15% to participate in a new $250 million loan for his companies.

The offering is ending a near one-month drought in the market for risky corporate loans, Bloomberg reports.

The loan, which matures in October 2023 and is being arranged by Jefferies Financial Group, is one of many levers Fertitta is pulling to shore up liquidity. The pandemic has brought the travel and leisure industry to a near standstill, leaving Fertitta’s businesses shuttered and burning cash while tens of thousands of his employees have been furloughed.

Fertitta, a Texas billionaire who owns Golden Nugget casinos and restaurants such as Del Frisco’s and Bubba Gump Shrimp, announced last month that he had to temporarily lay off 70% of his employees (roughly 40,000 workers) to limit the economic damage caused by coronavirus shutdown losses.

The company has already drawn $300 million of existing credit lines in full and Fertitta is injecting $50 million of his own cash into the business, according to Bloomberg.

Based on initial discussions with investors, the loan is being offered at a spread of 14 percentage points over the benchmark London interbank offered rate and at a discount of about 96 cents on the dollar, the people said. That puts the all-in yield above 15%. The spread is the highest ever seen in the U.S. leveraged loan market excluding companies in bankruptcy, according to data compiled by Bloomberg.

Fertitta sees the new loan as an expensive insurance policy in the event that none of these businesses can reopen before the end of the year.

The leveraged loan market has been slower to recover from the recent turmoil than the high-yield bond market, which reopened last week to borrowers seeking to replenish credit lines and to improve liquidity.

While the restart is good news for companies that need cash, the cost of borrowing has soared. Only two months ago, sentiment in the credit market was so robust that debt investors allowed Fertitta to take a $200 million dividend out of the company, doubling the size initially targeted. That debt cost Fertitta only 2.5 percentage points over Libor.

The Landry’s loan is similar to a junk bond in that it may not be repaid for two years, the people said. It will be on an equal footing to Golden Nugget’s existing term loan but has a first-priority claim on some online gaming assets.