Blackstone’s ‘aggressive funding mix’ materially weakens Crown Resorts following $8.9bn takeover: S&P
Just days after James Packer cut ties with Crown, S&P Global Ratings warns of ‘uncertainty regarding the gaming group’s capital structure, funding mix, and financial policies’.
Blackstone’s “aggressive funding mix” to complete a $8.9bn takeover of Crown Resorts has “materially weakened the casino group’s credit profile”, according to S&P Global Ratings.
S&P cut its issuer credit ratings on Crown to ‘BB-/B’ from ‘BBB/A-2’ on Tuesday before withdrawing ratings at the company’s request. Crown has requested the withdraw of all its ratings given its no longer an ASX-listed company and Blackstone doesn’t require credit ratings.
“We also lowered the long-term issue credit ratings on the company‘s guaranteed notes to ’BB-’ from ’BBB’. We kept the ratings on CreditWatch with negative implications. We then withdrew the ratings on Crown at the company’s request,” S&P said.
“We lowered the ratings to reflect our view that Blackstone’s takeover of Crown and the aggressive funding mix to facilitate the transaction has materially weakened Crown’s credit profile. Blackstone has repaid all the rated debt.
“We kept the ratings on Crown on CreditWatch with negative implications prior to the withdrawal to reflect uncertainty regarding the group‘s capital structure, funding mix, and financial policies.
“We will no longer have access to information on Crown because it will become a private company. Considerable uncertainty remains on Blackstone’s operating strategy and the final capital structure.”
Blackstone struck a $5.4bn debt funding agreement with Starwood Capital Group and two of non-listed real estate investment trusts – SREIT Project Silver Lender I and SREIT Project Silver Lender II – ahead of the Crown deal.
But it said it “does not currently intend to pursue a sale and leaseback” for Crown, despite such a move generating about $1.5bn, according to Grant Samuel, which Crown commissioned to complete an independent expert’s report for the Blackstone takeover.
Blackstone has completed sales and leasebacks in the past, notably after buying Las Vegas’ then financially distressed Cosmopolitan casino from Deutsche Bank for $US1.73bn ($2.51bn) in 2014. It then spent $500m in upgrades before selling the complex for $US5.65bn last September to MGM Resorts.
S&P’s note comes as Crown faces a fine of up to $100m from Victoria’s new gaming regulator over “multiple breaches” of its responsible gambling obligations — including not “adequately supervising” at risk patrons — at its flagship Melbourne casino.
The new potential fine – a penalty from revelations of last year’s Victorian Royal Commission into Crown – is on top of the record $80m penalty the VGCCC slapped on the company in May over the use of Union Pay cards to illegally transfer funds from China.
It comes as Crown is preparing to finally open its gaming floor at its new $2.2bn casino in Barangaroo after the NSW regulator granted the company conditional approval last month.
Blackstone has appointed former Las Vegas Cosmopolitan chief executive Bill McBeath as Crown’s new chairman, replacing Ziggy Switkowski.
But Crown CEO Steve McCann is yet to whether he will accept a $9m payout following Blackstone’s takeover or stay and continue to oversee the company’s reform and is understood to be discussing his future with the company’s new owners this week.
Mr McCann’s employment contract includes a change of control clause, meaning he could reap an immediate payout of up to $9m, including $5m worth of long-term performance rights that vest under Blackstone’s ownership.
When Blackstone finalised its takeover on June 24, Mr McCann said the company had made significant progress in its reform efforts, particularly in responsible gambling, which will be rebranded customer care.
Adhering to a responsible gambling code of conduct is a condition of its Victorian casino licence.
“We’ve materially enhanced our focus on responsible gaming. We had already introduced some reduced play … testing and trialling that over some time. We also have been supportive of a national self exclusion register and we’ve materially enhanced our resources in responsible gaming. We have over 60 responsible gaming advisers in crown which is multiples of what casinos have,” Mr McCann said.
“We’re going to change the language here, it will become about customer care not about responsible gaming, I think that has a bit of a stigma attached to it.
“The aim is to get everyone within the organisation aligned behind the same vision, the same purpose.”
Blackstone finalised its $8.9bn takeover of Crown on June 24, ending James Packer and his family’s decades-long association with the group.
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