Oaktree Capital makes low ball debt offer to Star Entertainment lenders

Star Entertainment is assessing recapitalisation proposals to stay afloat. Picture: Glenn Campbell/ NewsWire

Californian alternative asset manager Oaktree Capital has offered 65c in the dollar to buy Star Entertainment Group’s debt as the casino operator’s future hangs in the balance.

Star told the market on Monday that it had received a debt financing proposal from Oaktree-related funds that included a commitment letter and term sheet.

This set out terms upon which Oaktree would be willing to provide a total of $650m in two debt facilities with a term of five years.

However, while Star did not reveal all the terms of the proposal, DataRoom has learned that the alternative investor that counts Brookfield as a major investor offered 100c in the dollar for the $100m-odd of super senior debt in the business and 65c in the dollar for the $328m worth of senior debt.

One condition of the proposal was that Star’s banks would sell into the offer, yet key lenders such as Deutsche Bank have been refusing to do so, despite fielding approaches.

Star told the market that other conditions included a comprehensive security package and intercreditor documentation, which requires consents from NSW and Queensland Governments and regulators, completion of due diligence in relation to specified matters.

It was not conditional on any deferred tax payments or raising subordinated capital.

Star said it continued to explore possible liquidity solutions.

Super senior lenders that rank first in line to be paid include financiers such as Deutsche Bank, Macquarie Group, Barclays, Regal, ARCM and Soul Patts, and already, the company has $100m worth of cash payable should the company collapse.

Oaktree, which recapitalised one of the country’s largest cancer care providers GenesisCare in 2023, last year offered a convertible bond proposal through adviser Jefferies, but the cash strapped company opted for an equity raising instead.

The Australian-listed Star, which owns casinos in Sydney, the Gold Coast and Brisbane, is exploring various options, including asset sales and raising further equity, as “material uncertainty” exists over whether it can continue as a going concern.

Working as Star’s adviser is investment bank UBS.

Star’s shares closed 12.5 per cent higher on Monday’s news about the Oaktree proposal to 13.5c, taking its market value to close to $360m.

This is less than its $430m of debt — and the $1.5bn it secured in 2023 in two separate equity raising efforts.

It faces a class action, Austrac fines for anti-money laundering law breaches, and is on the hook to pay back half the $1.6bn of debt on its new Queen’s Wharf hotel and casino complex development in Brisbane.

Any equity raising would likely require a clear road map to producing cash flow and profit, say sources, at a time when earnings have crashed on the back of tougher checks around money laundering and new cashless gaming rules.

Equity investors would also need to see banks reach an agreement with the company consisting of something like a two- to three-year standstill.

The company, whose directors and executives are facing action from the corporate watchdog ASIC over an alleged breach of corporate duties, last week said it had received several confidential, indicative and non-binding proposals from Chow Tai Fook and Far East Consortium seeking to acquire The Star’s 50 per cent interest in its share of the $3bn Queen’s Wharf project, along with other assets.

The board said after consideration and external advice, it determined none of the proposals had provided sufficient value for Star, but negotiations were continuing to establish whether a sale could be negotiated on satisfactory terms.

FTI Consulting is advising Star, while McGrath Nicol is advised by its banks, and a raft of other restructuring specialists including MA Moelis are also involved.