The growing view around the market is a voluntary administration of The Star Entertainment Group is inevitable, but one scenario being discussed is it may take the form akin to a Chapter 11 bankruptcy in the United States.
It could be Star is only placed into voluntary administration for several weeks while the lenders and its advisers convince governments in Queensland and NSW to defer gaming tax payments.
Gaming machine taxes are paid from the metered profits of gaming machines in clubs and hotels and have been increasing as part of overall reform to stem problem gambling in Australia.
If Star collapses the governments get nothing, so they may take a pragmatic approach.
Positioned to take the voluntary administration appointment is FTI Consulting, while McGraph Nicol would likely be announced as the receiver.
In the United States, Chapter 11 bankruptcy is where a group gets to stay in business while it restructures its debt, reorganises its affairs and pay creditors over time so it can keep trading.
Star’s $60m in proceeds from the sale of its Sydney event centre to Foundation Theatres announced on Wednesday is being held in escrow, as part of an agreed terms with lenders.
But in the voluntary administration process, lenders could agree to release about $40m of escrowed funds to run the business for three to four weeks while negotiating with the governments over the gaming tax arrangements.
There’s also $50m worth of so-called “cage cash” held in the cashier cages of the casino properties which can be used.
And Star can still sell its Treasury building carpark in Brisbane and hotel rooms in Brisbane and Sydney, which would provide hundreds of millions of dollars in proceeds.
A real estate group like Charter Hall may line up to take the carpark.
Austrac, the country’s anti-money laundering watchdog, which is imposing fines against Star, ranks behind the lenders.
Star’s main financiers include Deutsche Bank, Macquarie and Soul Patts, although Deutsche is believed to be leading the charge.
While their debt has been bid for at about 80c in the dollar, they are not sellers at the present time.
Efforts were understood to have been made about four months ago by UBS to raise $150m which was required as part of Star’s refinancing terms, but the proposals put forward at the time were not seen as favourable to Star.
While credit funds like Oaktree Capital Management and Cerberus Funds are monitoring the situation, there’s been no move yet by any of the camps.
California-based Oaktree, which recapitalised Australian healthcare provider GenesisCare, was keen to recapitalise Star by way of a convertible bond early on, but cooled on the idea last year when its state of distress was becoming increasingly evident.
Last year, lenders provided $100m of super senior debt to Star and are 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 — has been dependent on various conditions, including the group securing an additional $150m of funding.
Compounding regulatory fines and dwindling income at Star’s casinos in Sydney and the Gold Coast — due to new rules around cashless gaming — is the major liability presented by its Queen’s Wharf project at Brisbane.
Last year, Star still needed to spend $360m of capital on the project, which has $1.6bn of debt of which Star’s share sits at about $800m.
Chief executive Steve McCann has been preparing the market for the prospect of a collapse, saying there’s “material uncertainty” over whether it can continue as a going concern.
Its revenue plunged in December to $299m for the second quarter and costs have risen over its $3.9bn Queen’s Wharf precinct development.
It had $78m cash at the end of December.
Star was making an $8m loss for the second quarter and $18m in the first quarter on an earnings before interest, tax, depreciation and amortisation basis.
Another outcome is a debt restructure happens without an official voluntary administration appointment, but the outcome would likely be the same.
The motivations of Macau investor Wang Xingchun’s move to snap up 6.52 per cent of Star is still unclear.
Star counts billionaire publican Bruce Mathieson as a 10 per cent holder and he now stands to lose on his investment, in the order of about $150m, although he’s also one of the lenders.
Other major investors are Perpetual, Soul Pats and Far East Consortium.
Star’s share price is now 13.2c and its market value $372m, but it’s now a lender’s game, with a collapse likely to lead to shareholders walking away with nothing.
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