Crown Resorts warns Victorian government of loan default risk if casino licence revoked

Crown warned the Victorian government it is at risk of defaulting on its debt if its casino licence is revoked, putting thousands of jobs at risk.

Crown Chairman Helen Coonan fronts the Victorian Royal Commission into the Casino Operator and Licence in Melbourne. Source: Supplied

Crown Resorts has told the Victorian government it is at risk of defaulting on almost $1bn worth of debt, and a heavy blow to the state’s broader coronavirus battered tourism industry, if extreme adverse findings are made against it by the state’s royal commission into the company.

The possibility of Crown defaulting on its debts was revealed in a letter sent by Crown‘s lawyer Leon Zwier, partner of Arnold Bloch Leibler partner, to Victorian gaming Minister Melissa Horne on behalf of Crown on July 2.

The royal commission released a redacted version of the letter on Friday, its last day of public hearings.

It comes a day after Crown executive chairman Helen Coonan denied that the company was seeking to interfere with the royal commission, telling the commission she only wanted to warn the government of “catastrophic consequences” if Commissioner Raymond Finkelstein made adverse findings against the company.

But Mr Finkelstein said a plain reading of the letter suggested that the way its objectives could be achieved was “to stop the commission altogether.”

At stake is Crown’s licence for its 27-year-old sprawling casino complex at Southbank, which takes up almost the entire southeastern flank of Melbourne’s city grid. It is Victoria’s biggest single site employer, with about 11,500 staff and is host to premier events such as the AFL’s Brownlow Medal count.

Similar to the NSW Bergin inquiry, which found Crown unsuitable to hold a licence for its new casino in Barangaroo unless it could transform itself, the Victorian royal commission could also recommend that Crown lose its licence.

It would have severe consequences for Crown’s ability to service its $900m of net debt. Mr Zwier highlighted this in their letter to Ms Horne, stating “it is not in the public interest for Crown to fail.”
“If there is an EOD (event of default) it may have severe consequences for Crown and all its stakeholders,” Mr Zwier wrote in the letter.
“This will impact on Crown’s shareholders, employees, unions, trade creditors, patrons, the hotel precinct and the Melbourne tourist industry.
“Crown Melbourne is the State’s largest single private site employer. An EOD may result in loss of employment or severe threat of loss or employment.”

The letter also said an EOD may lead to “potential overseas suitors an opportunity to take advantage of the situation.”

In May Crown knocked back a $8bn, $11.85 per share takeover offer from US private equity player Blackstone on the basis it “undervalued” the company.

On Friday afternoon Crown Resorts closed down 1.9 per cent at $10.99 after falling to a 4 month low of $10.70 earlier in the day.

It is also currently considering a $12bn merger proposed by rival Star Entertainment Group.

In the letter Crown’s lawyers noted that Blackstone’s offer contained a condition that “Crown’s Victorian casino licence is not suspended.”

“It is expected that any other suitor will impose a similar condition.”

However, they also appeared to push back against any perception that buyout would solve Crown’s internal problems.

“It is also evident that a change in control through an acquisition of shares will not itself address the issue of suitability and accelerate the culture change underway.”

In the letter Crown’s lawyers told the government it would submit to the royal commission that it is a “suitable person” to hold the state’s only casino licence, being different from the “Packer influenced old Crown”.

To that end, they also said Crown would “give serious consideration to terminating the services” of any executives or employees who are subject to an adverse finding by the commission.

The letter also revealed that Crown now believes the amount of gaming tax they may have underpaid the state to be “less than $20m,” despite CEO Steve McCann telling the department of treasury and finance the week before that the amount was $8.8m.

The commission has heard that the underpayment could be in the hundreds of millions. Crown’s lawyers said it would work with the government to determine an amount if there is any conflict over the final result, which will be paid with interest on a “without prejudice” and “no admissions” basis.

The commission will hear closing submissions from counsel assisting on July 19 and report to the Victorian government by October 15.

Additional reporting: Jared Lynch