Gala Coral debt holders take control and leave buyout firms in the cold

The future of the heavily indebted betting and bingo group Gala Coral was secured yesterday when debt holders swapped their near-worthless investment in the company for equity, bringing to a close almost a year of negotiations.

Gala Coral's three private equity backers – Candover, Cinven and Permira, which invested £1.2bn of clients' money on the transaction – have lost almost their entire stakes. The leveraged buyout of the group in 2005 was at the time the biggest in Europe.

Yesterday's agreement sees the company's junior lenders convert £558m of mezzanine debt into equity, investing a further £200m in cash which will be used to pay off senior debt. The deal wipes more than £700m of borrowings from the group's balance sheet, leaving it £1.9bn in the red. The mezzanine debt holders, including Apollo Management which now owns 25 per cent of the group, take the entire equity in the company. Four new independent non-executive directors are expected to be appointed, possibly by the end of the week.

"We are delighted," said Neil Goulden, Gala Coral's executive chairman. "The future has been secured and with £700m less debt, the management can get on with running the company without distractions." Mr Goulden said he had had emails of congratulations from some of the group's previous private equity owners.

Cinven and Candover, which initially bought the company, have lost about £160m each on the deal, while Permira has lost £370m.

None of the private equity firms involved in the deal was prepared to comment yesterday. In the past all have pointed to the particular difficulties in the bingo business, such as the imposition of the smoking ban.