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Friday Letter: Playing with the big fish

GSO Capital Partners’ participation in the financing for Amaya Gaming Group’s $4.9bn acquisition of Pokerstars marks a step-change for the private debt industry.

Although private debt funds are typically active in the mid-market, where the lack of bank-derived liquidity has been most acutely felt, a select few have the scale and firepower to play in the upper echelons of the market. One such firm is GSO Capital Partners.

When Canada-based online gaming company Amaya Gaming Group sought to raise financing for its $4.9 billion acquisition of peer Pokerstars, the lending consortium its banking advisors assembled included some of the usual suspects: Deutsche Bank, Barclays, Macquarie Group. But it also included The Blackstone Group’s debt unit, GSO.

For GSO, the deal marks its biggest credit play to date. The US group has subscribed to $600 million in convertible preferred shares, will purchase $55 million of common shares, and has also participated in an $800 million senior secured second lien term loan.

That’s a massive quantum for a private debt group to underwrite, even considering the capital is drawn from three of the group’s funds.

The deal cements GSO’s place as one of the true heavyweights in the industry. The firm, founded by Bennett Goodman, Tripp Smith and Doug Ostrover in 2005 and brought under Blackstone’s wing in 2008, has been a fundraising machine – it now outranks Blackstone’s core buyout group in terms of assets under management (it oversees $66 billion) and is only just behind the group’s vast real estate arm.

That kind of firepower buys you a seat at the biggest tables, and so it’s proved here.

Interestingly, GSO was already an existing lender to Amaya, having extended a loan of between $100 million to $125 million to the company in 2012, according to Goodman, who spoke earlier this week to investors. It also provided about $160 million to a subsidiary of Amaya in December, according to Bloomberg.

So should banks be worried? Not at all. It’s a healthy development to see funds like GSO willing and able to extend credit to back large corporate M&A deals such as this. Blackstone’s own president, Tony James, wrote earlier this year of the integral role what he called “market-based finance” institutions such as GSO have to play in both providing liquidity to the debt markets and de-risking the system.

As the private debt industry develops, we may well see more firms reaching the sort of eye-watering scale GSO has achieved, and consequently finding their way into big-ticket deals such as this. It’s a welcome development.