Investment bank Jefferies Australia was believed to be advising Oaktree Capital Management on its negotiations with Star Entertainment to inject funds into the casino operator before it pulled the trigger on a $800m equity raising.
The Australian listed casino operator Star Entertainment confirmed on Thursday that it was raising $800m at $1.20 per share through Barrenjoey and Macquarie Capital.
It is understood that Star had battered away a proposal from US distress fund Oaktree to provide a convertible note solution where it would offer about $200m of funding after talks held at the weekend.
While the company considered the opportunity, it moved toward the equity raising option, outlining details about the raise on Thursday as it delivered a $1.26bn loss.
The loss came with a $988m write down on its flagship Sydney casino following announced proposed changes by the NSW government to the state’s casino tax rate.
Large corporates typically use major global distress funds like Oaktree as a last resort, with such groups often striking deals at terms that are highly favourable to the funds and can be a signal to other investors on the register that the company is struggling.
Yet the latest situation shows that the Californian fund, which counts Brookfield Asset Management as its major shareholder, is very much open for business down in this end of the world as it gears up for more distress opportunities where companies have been hard hit by inflationary pressures and a slowing economy.
It is not the first time that Jefferies has worked with Oaktree to offer solutions on an Australian casino operator.
In 2021, Jefferies worked with Oaktree as it put a proposal to Star’s rival, Crown, where it offered a mixture of debt and equity to enable Crown to buy back all or some of Mr Packer’s interest.
This was to be at a cost that could be cheaper than if it were to seek independent funding.
The Oaktree offer valued the shares in the company at $12 each, whereas Blackstone eventually offered $13.10 per share.
Star’s raise was at a 21.2 per cent discount to the last closing price of $1.52 on February 21 and gives the casino operator covenant relief from both its bank lenders and US Private Placement note holders through to June 2025.
It comprised a 3 for 5 pro rata accelerated non-renounceable entitlement offer worth about $685m and an institutional placement of about $115m.
Among its backers are its development partners, Chow Tai Fook and Far East Consortium, which have taken up precommitments for shares worth about $80m, equating to their pro-rata entitlement in the equity raising, and the balance is underwritten.
Wealthy publican Bruce Mathieson has also supported the raising.
The capital injection reduces Star’s net debt from $1.1bn to $341m, equating to 0.8 times its earnings before interest, tax, depreciation and amortisation.
Star Entertainment now plans to target 2 to 2.5 times leverage over the long term, with an ongoing focus on capital structure optimisation, refinancing initiatives, asset monetisation and its liquidity position.
It has suspended dividends until it reaches its long-term target leverage ratio.
The company entered a trading halt after DataRoom reported on Tuesday that the group had renegotiated debt covenants with its lenders.
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