Oaktree keen to be Star’s only white knight

The Star complex operated by Star Entertainment in Sydney. Picture: Bloomberg

California-based private equity firm Oaktree Capital Management is believed to be angling for exclusivity with Star Entertainment when it comes to providing it a funding lifeline.

Since DataRoom first reported in April that Star had been in talks with Oaktree and its rivals, including Apollo Global Management, Bain Capital and potentially Blackstone, about securing funding, sources say that Oaktree is the strongest contender to strike a deal with Star.

Yet the thinking has been that more clarity is needed around the size of the fines Star will need to pay over its breaches of money laundering and counter-terrorism financing laws which were discovered during an investigation into the casino operator in 2021.

Sources believe that the outcome for Star may need to be both an equity injection from an opportunistic credit fund and asset sales.

The casino most likely to leave its portfolio, if this is the case, is Star’s casino on the Gold Coast, say sources.

Star counts Bruce Mathieson as its holder of almost 10 per cent and one theory is that he is keen to extract assets out of Star, with his eye on both the Gold Coast and Sydney casinos.

Another theory is that Endeavour Group’s pubs, which receive a strong uplift in profits from their slot machines, could be brought together with Star’s casinos in some way via Mr Mathieson.

But this is seen as a highly complicated plan, and complicated even further by pokies reforms out this week by the Victoria government.

The reforms propose trading hours restrictions on venues with slot machines, and tougher laws on gambling limits and the use of identification.

Endeavour shares fell more than 10 per cent on Monday on the back of an announcement on poker machine reform in Victoria – as it said it was hard to speculate on the impact of the reforms – but rebounded almost 1 per cent on Tuesday.

Star has already tapped the market, securing $800m in equity from investors during February at $1.20 per share, so that option has been largely exhausted when it comes to securing funds.

Working for Star has been law firm King & Wood Mallesons and investment bank Barrenjoey.

Blackstone purchased Star’s rival, Crown Resorts, last year for $8.9bn.

Oaktree has been around the hoop at Star before, and sources say that Blackstone may be interested in a funding solution rather than an acquisition.

Working for Oaktree is investment bank Jefferies.

It offered about $200m through a convertible note in February.

While the company considered the opportunity, it moved toward the equity raising option.

Large corporates typically use distress funds like Oaktree as a last resort, often striking deals at terms that are highly favourable to the funds and indicate that the company is struggling.

In 2021, Jefferies worked with Oaktree as it offered a mixture of debt and equity to enable Crown to buy back all or some of James Packer’s interest.

The Oaktree offer valued the shares in the company at $12 each, whereas Blackstone eventually offered $13.10.

In April, Star said it was accelerating plans to refinance debt, with a focus on improving its liquidity position and increasing covenant headroom.

The capital injection in February reduced Star’s net debt from $1.1bn to $341m, equating to 0.8 times its earnings before interest, tax, depreciation and amortisation.

The loss-making Star has written down its flagship Sydney casino by $988m in light of proposed changes to the NSW casino tax rate.

Last month, it told the market that it had agreed to sell the Sheraton on the Gold Coast to the Karedis and Laundy families for $192m and this month said it had brought on Peter Hodgson as a director.

Star’s shares were down more than 1 per cent with its market value at $1.75bn.