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Streetwise Gateway Casinos expects to resume marketing IPO to investors

President Donald Trump, a former casino owner, may have done Gateway Casinos and Entertainment Ltd. a favour by shutting down the U.S. federal government in late December.

Burnaby, B.C.-based Gateway announced plans to go public on the New York Stock Exchange in late November, initially targeting the sale of US$100-million in shares. The casino company, owned by financier Newton Glassman’s private equity firm, Catalyst Capital Group Inc., quickly hit two roadblocks. First, equity markets went into a tailspin in December. Then, Mr. Trump’s 35-day shutdown of the government meant regulators at the Securities and Exchange Commission stopped processing paperwork for initial public offerings.

By the time the U.S. President ended the standoff in late January, sentiment had shifted and markets were rallying. Shares in publicly traded Great Canadian Gaming Corp., a company that competes with Gateway in B.C. and Ontario, jumped nearly 15 per cent in the first two months of the year, though they sold off last week on a disappointing earnings report.

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Investment bankers working on the deal said Gateway is now preparing updated financial information and expects to resume marketing the IPO to investors in the coming weeks. The investment bankers were granted anonymity because they were not authorized to speak publicly about the matter prior to the offering. A spokesman for Catalyst declined to comment on Gateway, citing U.S. regulations that forbid discussions around IPOs until they are approved.

If Catalyst can get Gateway listed on the big board, it would mark the first time in a while that Mr. Glassman has delivered on the promise of a big payday from cashing in one of his company’s holdings. Catalyst manages approximately $4.6-billion, according to Gateway in the IPO documents, on behalf of institutional investors such as pension plans, endowments and family offices, and has extended deadlines for returning capital on a number of its funds.

Last year, investors in Catalyst were told by Mr. Glassman to expect impressive returns on several impending deals involving companies it controls, including Gateway, publicly traded lender Callidus Capital Inc., Therapure Biopharma Inc., Advantage Rent A Car and Sonar Entertainment Inc. He told investors in a letter sent last summer to expect developments on those fronts, but so far, nothing has been made public other than the Gateway IPO filing.

Gateway initially filed to go public in 2012, then pulled the offering. The latest stock sale is led by Morgan Stanley & Co. LLC, Credit Suisse Securities (USA) LLC and Goldman Sachs & Co. LLC. Catalyst also announced plans to list a division of Therapure on the Nasdaq exchange, but has yet to follow through on the transaction.

In the paperwork for the Gateway IPO, Catalyst highlighted recent expansion that saw the casino company win mandates from the government-owned Ontario Lottery and Gaming Corp. to operate three regional “bundles” of casinos under the province’s partial privatization. Gateway runs 26 casino properties and posted an operating profit of $27-million on revenue of $424-million through the nine months ended Sept. 30, the most recent publicly available financial results.

If the IPO happens, Catalyst’s plan is to continue to own a significant stake in Gateway. Several investors who met with Gateway executives during IPO marketing meetings in December said they expected Catalyst to continue selling Gateway shares in the months after the stock is listed. These investors, who were given anonymity because they signed confidentiality agreements, said they would likely not buy into the IPO and would instead wait to see how the stock traded before making an investment decision. Gateway executives pitched the potential growth of gambling revenues from Ontario properties that are being built or renovated as part of IPO sales pitch, they said.

Along with the long-delayed Gateway offering, Mr. Glassman had also floated plans to buy out public investors in Catalyst-controlled distressed lender Callidus, which went public in 2014 at $14 a share. In December, Callidus’s second-largest shareholder, Bahamas-based Braslyn Ltd., proposed to buy out the minority shares for $2 each, well below Catalyst’s previous estimated target of $18 to $22 a share.

But Braslyn, an investment firm owned by British billionaire Joe Lewis, has said nothing publicly since. Callidus shares closed Friday at $1.68 on the Toronto Stock Exchange.

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