As investors and lenders continue to assess the damage Star Entertainment has sustained after the release of its accounts last week and a thumping $1.7bn annual loss, next on the agenda for restructuring experts could be its rival Crown Resorts.
Blackstone keeps the financial details about Crown very much in house, but its debt and whether it may be close to breaching its covenants is now a talking point after investors last week saw how mandatory carded gaming had affected Star.
Star’s new boss, Steve McCann, said its partially carded gaming was down 10 per cent, and observers think Crown could be at least double that level.
With carded play, punters set gambling limits they can’t change for 24 hours and get an email each month stating how much they have lost.
Blackstone purchased Crown Resorts, which owns casinos in Melbourne, Sydney’s Barangaroo and Perth, in 2023 for $8.9bn.
Crown is expected to be hit much harder by the industry clean-up than Star because it is more reliant on high-roller gamblers.
High-rollers have been deterred from entering the Australian market due to new rules to curb money laundering and problem gambling.
As expected, Star Entertainment’s shares crashed when the stock resumed trade on Friday, falling 20c to 25c, which left its market value at $720m.
Before its troubles, Star – now advised by UBS – was worth about $4bn and it raised about $1.5bn last year in fresh equity from investors.
The understanding is that institutional investors were hesitant to participate in a convertible notes raising because of the uncertainty over the Austrac fines Star faces for money laundering offences.
Private equity groups such as Oaktree Capital Management, which were eager to participate before, has also gone, because the holders of the $100m super senior debt provided to the company are the first in line to be paid.
A further $100m provided by those lenders – at an interest rate of 13.5 per cent, like the first tranche – is dependent on various conditions, including the group securing an additional $150m of funding.
Most believe this needs to come from a convertible bond raising, which involves fixed-income debt that pays interest being converted into equity.
Maybe Mr McCann can pull a rabbit out of the hat and sell off Star’s Sydney casino to Blackstone to raise the funds, but separating the assets in the business is not easy.
Alternatively, if he negotiates an outcome with Austrac before the December deadline, perhaps participants would feel comfortable being part of a convertible bond raising after all.
Then there’s the $360m of capital Star still needs to spend on its Brisbane Wharf casino development and the $1.6bn of debt owing on that – Star’s share is about $800m – and the question of whether it will get refinanced.
It’s tricky and messy, and industry observers will be watching with interest.
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