Bruce Mathieson backing Bally’s Corp bid for Star Entertainment

The opening of The Star Grand and Queen’s Wharf precinct in Brisbane in August. Picture, Richard Walker

Wealthy publican Bruce Mathieson is believed to be leaning towards the Bally’s Corp offer for Star Entertainment over a recapitalisation proposal by Australian group Salter Brothers Capital, say sources.

The embattled casino operator is yet to say whether it will accept or reject a buyout proposal from global casino operator Bally’s, which would provide more than $250m of capital through convertible notes, creating a 50.1 per cent ownership position. Bally’s, based in Rhode Island, would underwrite the raising but allow equity investors to participate.

The US casino group would need to carry out due diligence before firming up its proposal, and there are questions over the level of its interest following the sale of the Queen’s Wharf asset in Brisbane to Star’s partners, Chow Tai Fook and Far East Consortium.

However, it is understood that Bally’s is proposing to operate the Brisbane casino for the new ­owners .

While about $35m of cash has been released from the Queen’s Wharf transaction to Star, it is unknown when Star will be able to access the $60m from the sale of its Sydney event centre.

It creates a tense situation for Star’s Steve McCann-led management and board after the group indicated in January it had $79m of available cash, enough to continue operating for just a few weeks.

Star’s directors have also been unable to sign off accounts saying the company remained a going concern.

Mr Mathieson owns just under 10 per cent of Star and has an influential position.

Should the Bally’s deal be given the green light, Star would still face money laundering fines from Austrac. If Star entered voluntary administration, Austrac would need to get in line with other creditors to be paid, as would shareholders carrying out a class action.

There’s still uncertainty in the market as to whether Star’s senior lenders will agree to terms for a proposed $250m bridging loan from King Street Capital, and Star is yet to spell out where the group would rank.

If King Street wants its debt classified as senior debt, which a statement from Star suggests (it said it had entered into an agreement for a senior secured $250m bridge facility), other senior lenders including Macquarie, Barclays and Deutsche Bank would probably block the deal.

That could make the threat of a voluntary administration very real for Star, which has wracked up major losses from fines and strict rules to curb problem gambling, including the introduction of cashless gaming.

Alternatively, if Star pursues the Bally’s proposal, the casino operator would need to swiftly inject cash into the business while terms are ironed out.

But Bally’s has $US5.9bn assets and $5.9bn in liabilities, with $3.3bn of long-term net debt, according to its annual report, calling into question whether it has the balance sheet to support Star.

In a  Bally’s deal shareholders could see much of the value of their investments wiped out, with a conversion price of 8c or 9c a share.

The other option is a $750m bridging loan from Salter, but many question where the wealthy Australian group is getting its money from.

International investors are said to be involved, but not Singapore’s GIC, which has backed other Salter ventures.

Salter still needs probity approvals and regulatory consents for security over the group’s assets, but a deal could leave equity investors better off.

The understanding is that Star’s existing lenders like the Bally’s offer, because it involves subordinated debt that ranks behind existing lenders when it comes to getting paid.

Still, the details are yet to be fully explained to the market and come after Oaktree Capital put forward an earlier $650m refinancing plan that was frowned upon by senior lenders because they would be left short-changed.

It had agreed to sell its share of Brisbane’s Queen’s Wharf project to its joint venture partners, Chow Tai Fook and Far East Consortium, for $35m upfront and $53m in total, in a deal that frees it from its debt obligations on the asset that owes $1.4bn, due in December, and half of which Star had guaranteed.

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