Tilman Fertitta Seeks a $250 Million Payday After Ditching SPAC Deal
Tilman Fertitta Seeks a $250 Million Payday After Ditching SPAC Deal
(Bloomberg) -- Two years ago, the pandemic forced Tilman Fertitta to shutter his empire of casinos and restaurants, furlough 40,000 workers, and inject $50 million of his own money into his company. Now the Texas billionaire is using exuberant debt markets to pay himself back, and then some.
Fertitta Entertainment is planning to pay out $250 million to its founder and sole owner, thanks to some $5.6 billion the company plans to borrow in bond and loan markets this month when it refinances debt, according to people with knowledge of the transaction. Money managers are eager to lend to companies like Fertitta’s that pay relatively high yields and are posting record profits after people resumed traveling and eating out last year.
The refinancing comes just a month after Fertitta ditched an $8.6 billion plan to sell a stake in his empire to Fast Acquisition Corp., a blank-check company. In a statement last month, he said, “the right decision for my company was to remain private at this time,” adding, “I look forward to continuing to grow our business.”
On a call with investors this week, he joked that he was looking to avoid the kind of public-company drama displayed in HBO’s series “Succession,” according to one of the people. The show depicts a power struggle between fictional media magnate Logan Roy and his children for control of their conglomerate.
Some debt investors on the call see Fertitta’s comments as signaling that the company’s profits are growing fast enough that the deal may have undervalued the owner of Golden Nugget casinos as well as restaurants such as Del Frisco’s steakhouse and Bubba Gump Shrimp Co. Fertitta grew his empire mainly through acquiring and selling properties at good prices, buying, for example, the Trump Marina Hotel Casino in Atlantic City, New Jersey a decade ago for $38 million.
Over the twelve months through September, Fertitta Entertainment LLC raked in $822 million in a key earnings measure on sales of $3.1 billion, according to documents that were shared with debt investors and seen by Bloomberg News, a record figure. For the full year, adjusted earnings before interest, taxes, depreciation and amortization are expected to top $900 million, a person with knowledge of the company’s performance said.
A spokesperson for Fertitta Entertainment declined to comment, while a representative for Jefferies Financial Group Inc., the main arranger of the debt refinancing, didn’t return requests for comment.
Fertitta is tapping junk bond and leveraged loan markets that are still seeing strong demand. A gauge of loan prices hit a more than seven-year high this week, and yields on junk bonds, at around 4.39% now broadly, are far below the five-year average of 5.68%, according to Bloomberg index data.
Cutting Costs
While Fertitta Entertainment’s revenue overall is still below its pre-pandemic levels, aggressive cost cuts launched during the pandemic significantly improved profitability. In 2020, Fertitta cut back buffets and other freebies for unprofitable gamers at his casinos and laid off middle-managers. His restaurants tweaked their menus, reduced staff and cut unprofitable hours. Overall, headcount had at one point dropped by about 40,000 due to furloughs.
Fertitta, whose net worth is now about $5.3 billion according to the Bloomberg Billionaires Index, also injected $50 million of his own cash into the business in 2020. He secured money under the government’s paycheck protection program, but later gave it back amid public outrage over U.S. bailouts for bigger companies. He also borrowed $300 million in the loan market, paying double-digit interest rates to have more liquidity on hand, but also paid that back without using it.
Now revenue is rising and cost cuts are still helping the company. The Golden Nugget casino unit has boosted a measure of its operating profit margin to 46% in the twelve months through the end of September, up from 30% in the comparable period of 2019. Restaurants under the Landry’s division increased operating profitability to 25% from 19% over the same time.
The debt refinancing, which includes a mix of loans and bonds, will increase the company’s total indebtedness by around $800 million to around 5.7 times Ebitda, the documents show. The company stressed its high margins, ability to generate cash and $3 billion of owned real estate to entice investors. The Fertitta Entertainment entity issuing debt will have around $1 billion of cash on its balance sheet after the dividend, and a parent company will have another $1 billion.
Fertitta, speaking on the conference call, criticized prominent Democrats such as California Governor Gavin Newsom and former New York Governor Andrew Cuomo for imposing strict stay-at-home orders and mask mandates that he said damaged business. The billionaire is known for his bluntness.
Fertitta may look to take more money out of the company, according to S&P Global Ratings. The latest dividend brings debt-funded distributions since 2017 to more than $2 billion, S&P said. A large chunk of that was to help finance Fertitta’s purchase of the Houston Rockets basketball team. S&P rates the entity issuing the debt B, or five levels into junk.
“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.”
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