Scientific Games Banks Said to Put Off Bridge Loan Sale

Banks led by JPMorgan Chase & Co. put off syndicating $3.19 billion of loans for Scientific Games Corp. that finance its purchase of Bally Technologies Inc., leaving the lenders stuck holding the debt, according to four people with knowledge of the matter.

JPMorgan, Bank of America Corp. and Deutsche Bank AG, which were hired by the slot-machine maker to underwrite and sell the bridge loan, failed to gather interest from investors by an Oct. 3 deadline, said the people, who asked not to be identified because the information isn’t public. The company may repay the banks by selling bonds.

Marketing of the bridge loans, which are often used as backstops to bond offerings, floundered as yields on junk debt rose to the highest levels in a year amid concerns that a global economic slowdown may weigh on the U.S. If the loans aren’t paid down with a bond sale, Scientific Games faces interest rates that are scheduled to rise each quarter.

Tasha Pelio, a spokeswoman for JPMorgan, Zia Ahmed, a spokesman for Bank of America, and Kerrie McHugh, a spokeswoman for Deutsche Bank, declined to comment. Mollie Cole, a spokeswoman for Scientific Games, didn’t return telephone and e-mail messages seeking comment.

Junk Yields

Yields on speculative-grade debt jumped this month to a one-year high of 6.7 percent on Oct. 15, according to Bank of America Merrill Lynch index data.

The $5.1 billion Bally purchase would leave Scientific Games, where billionaire Ronald Perelman has the largest stake through his MacAndrews & Forbes Holdings Inc., with debt 8 times its earnings before interest, taxes, depreciation and amortization, Moody’s Investors Service said in a Sept. 3 report. By including expected cost savings between the two companies and using free cash flow to pay down debt, leverage drops to 6.5 times earnings, which Moody’s said “will still be considered high.”

Christine Taylor, a spokeswoman at MacAndrews & Forbes, declined to comment.

Scientific Games proposes taking on nearly $5.39 billion in new debt to help fund the $3.2 billion purchase of Las Vegas-based Bally and refinance about $1.8 billion of Bally debt, according to a Sept. 3 presentation made to lenders. The company’s banks have already finished marketing about $2 billion in separate loans that back the acquisition.

Scientific Games, rated B1 at Moody’s and B+ by Standard & Poor’s, dropped nearly 6.6 percent to close at $9.26. Shares fell as much as 13.6 percent today to $8.56, the biggest decline since May.

Loan Rate

The bridge loan debt includes a $485 million seven-year secured portion that pays interest at 5.75 percent, a $2.2 billion eight-year unsecured bridge slice that pays 7.25 percent and a $500 million 10-year unsecured loan that pays at least 7.75 percent, two of the people said.

The rate on all three loans would increase by 0.5 percent every 90 days until the acquisition is closed or the debt is repaid with bonds. Interest rates would have been capped at 7.5 percent on the secured bridge loan and 9.75 percent on the 10-year unsecured loan, according to the people.

Commitment Fees

Investors who agree to fund bridge loans receive fees for their commitment. Scientific Games would have paid investors 50 basis points for pledging at least $100 million of the secured loans and 75 basis points for the same amount of unsecured loans, according to the people. Commitments of less than $75 million would have garnered 37.5 basis points on secured debt and 50 basis points on unsecured borrowings. A basis point is 0.01 percentage point.

The bridge loans may be repaid with a high-yield bond offering that will be led by the three banks, the people said. The note sale may take place before the Bally acquisition closes, they said. Bally told investors Oct. 20 the purchase should be completed later this year after a Nov. 18 shareholder vote, according to a proxy filing.

Bank of America agreed to underwrite 37.5 percent of a total $3.25 billion in funds to Scientific Games’ deal, according to an Aug. 4 filing with the U.S. Securities and Exchange Commission. JPMorgan agreed to fund 34.4 percent and Deutsche Bank took 28.1 percent, according to the document.

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