Report: Fertitta offers record 15% loan rate for other businesses

Fertitta is reportedly offering lenders an interest rate of 15% to participate in a $250-million loan for his non-Rockets businesses.

Houston Rockets owner Tilman Fertitta, who also owns the Landry’s restaurant group and Golden Nugget casino chain, is reportedly offering potential lenders an interest rate of at least 15% to participate in a new $250 million loan for his non-Rockets businesses.

Fertitta’s restaurants and casinos have largely been shut down since early March due to the coronavirus (COVID-19) pandemic, which has also halted the 2019-20 NBA season for the time being.

Regarding the loan plan to help shore up his other businesses, Bloomberg‘s Davide Scigliuzzo and Jeannine Amodeo write:

The businessman is offering potential lenders an interest rate of at least 15% to participate in a new $250 million loan for his Golden Nugget casinos and hundreds of restaurants under the Landry’s Inc. umbrella that have been ravaged by the coronavirus, according to people with knowledge of the matter.

The loan, which matures in October 2023 and is being arranged by Jefferies Financial Group Inc., is one of many levers Fertitta is pulling to shore up liquidity.

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, said one of the people, who asked not to be named because the details are confidential.

In comments last month, Fertitta indicated that he has had to cut hours for hourly staff and furlough roughly 40,000 employees in response to the economic fallout of COVID-19 shutdowns.

Fertitta, who says he is now feeding his 2,000 Houston employees out of one of his shuttered restaurants for free, projected that his companies could survive the pandemic at current rates until the end of 2020.

In Monday’s story, Bloomberg cited a source as saying that Fertitta sees the new loan program “as an expensive insurance policy in the event that none of these businesses can reopen before the end of the year.”

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.

As for the Rockets, they’re currently projected to have the NBA’s No. 6 payroll for the 2020-21 season at over $130 million in total salary. While Fertitta has not warned of any financial consequences for the basketball franchise due to the pandemic, it’s a storyline worth monitoring if his businesses are not allowed to reopen in the coming weeks.

Though all NBA owners will feel at least some financial effects due to the pandemic, Fertitta could be disproportionately impacted given the nature of his businesses (entertainment, restaurants, and hospitality).

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