Major Wall Street Banks Stuck with $500 Million in Unsold Debt
In a surprising turn of events, Wall Street's gamble on a massive $1.64 billion loan for a Czech billionaire-backed lottery company has backfired spectacularly. Banking giants including Goldman Sachs Group Inc. and Deutsche Bank AG were forced to absorb approximately $500 million of the debt on their own balance sheets after failing to attract sufficient investor interest.
The loan was intended to fund Allwyn's acquisition of a majority stake in Atlanta-based fantasy sports operator PrizePicks. However, the deal encountered unexpected resistance in credit markets that have become increasingly selective in recent weeks.
The Failed Syndication Strategy
According to sources familiar with the transaction, banks had initially been so confident about investor demand that they provided backstop-like financing on a fully underwritten basis. This approach typically allows banks to quickly syndicate loans to institutional investors and minimize their own exposure.
The banking consortium, which also included Barclays Plc and BNP Paribas SA, managed to raise only $1 billion from institutional investors, leaving a significant shortfall. This forced them to step in directly to cover the remaining amount.
Compounding their challenges, the banks lost some control over flexible pricing mechanisms—known as "flex" in industry terminology—that would normally help them adjust terms based on market conditions. This standard feature of leveraged buyout financing was notably absent from this arrangement.
Allwyn's American Expansion Ambitions
Allwyn, which currently operates lotteries for the state of Illinois and the UK, is aggressively expanding its US presence. The company agreed in September to purchase a 62.3% stake in PrizePicks for an expected initial cash consideration of $1.6 billion, implying an upfront enterprise value of $2.5 billion.
The company is controlled by Czech billionaire Karel Komárek, whose net worth of $10.6 billion places him as the 310th-richest person globally according to the Bloomberg Billionaires Index. Allwyn represents the majority of Komárek's fortune and is managed through his Prague-based conglomerate KKCG.
To complete the financing package, Allwyn's lenders provided $500 million through a term loan A—typically held by banks rather than sold to investors—while the remaining $140 million came from an existing revolving credit facility.
Market Implications and Industry Context
This financing struggle highlights growing skittishness in leveraged debt markets, which until recently had shown robust appetite for acquisition-related debt. The fact that a deal of this magnitude faced such difficulties signals a potential shift in market sentiment.
Adding to the challenges, Allwyn proved to be a relatively unknown entity for some investors, while others faced ESG limitations that prevented them from investing in gaming-related companies.
Representatives for Allwyn, Goldman Sachs, Deutsche Bank, BNP Paribas, and Barclays all declined to comment on the matter. Notably absent from this financing were some of Allwyn's regular lenders, including Citigroup Inc., JPMorgan Chase & Co., and Morgan Stanley.
The deal's pricing was ultimately adjusted for the double-B rated term loan B to pay 250 basis points over the benchmark at a discount of 98, moving from initial guidance of 225-250 basis points at 99. It remains unclear whether the banks had to sacrifice their fees to make these adjustments.
This situation contrasts with recent successes in the gaming sector, where companies like Flutter Entertainment successfully raised $500 million in term loans alongside $1.3 billion in bonds, and Intralot SA arranged financing for its acquisition of Bally's Corp.'s online casino business in July.
