Houston Rockets owner Tilman Fertitta (front left) and hip-hop performer Travis Scott address the crowd before the Santa Fe High School choir sang the national anthem at Game 5 of the NBA basketball playoffs Western Conference finals on May 24, 2018, in Houston. Ten people were killed in shootings at the school the week before. (AP Photo/Eric Christian Smith)
The $1.4 billion in debt raised by Tilman Fertitta a little over a year ago with the sale of bonds enabled the billionaire restaurant and casino owner to pay himself the dividend he needed to buy the Houston Rockets for $2.2 billion—a record price for an NBA franchise.
As Texas Monthly reported shortly after the Rockets deal was completed: “Rather than selling equity in the company, which would have meant giving up full ownership, Fertitta decided to make up that difference by issuing corporate bonds and bank debt. It’s a strategy he’s used time and again since taking Landry’s and the Golden Nugget private, in 2010. ‘He has a very, very good reputation and track record in the bond market,’ said Rich Handler, the CEO of Jefferies, which served as the lead underwriter of the bond sales. ‘We’ve done a lot of deals with him, and the lenders have made a lot of money.’”
Fertitta sold $745 million of bonds maturing in 2024 at an interest rate of 6.75%, and $670 million of bonds maturing in 2025 at 8.75%.
The bonds are the obligation of Golden Nugget, Inc. Bondholders have no recourse to the basketball team. GNI, wholly owned by Fertitta, owns and operates the Golden Nugget hotel, casino and entertainment resorts in downtown Las Vegas and Laughlin, Nevada, and the Lake Charles property in Louisiana. The company also owns and operates dining restaurants, mostly casual, such as Landry’s Seafood House, ChartHouse, Saltgrass Steak House and Rainforest Café.
The Rockets made it to the Western Conference finals last season. But not all of the bond buyers have fared nearly as well. The price of the 2024s has fallen from $102 to $98. Or looked at another way, the yield on the 2024s has increased to 7.1% from 6.75%. Yes, bonds in general have been hammered this year due to climbing interest rates, but other restaurants, like Yum Brands and Wendy’s, have comparable bonds with yields more than 100 basis points lower. Investors may also have soured a bit when Fertitta was rebuffed in his attempt to buy Caesars Entertainment this month.
Fertitta has a great track record. But getting the bondholders a nice return on their capital is not going to be a layup.