Star Entertainment rescue plan under threat from key lenders, say sources

The future of Star Entertainment, which owns NSW and Queensland casinos, hangs in the balance. Picture: iStock

Star Entertainment Group’s rescue plan could be derailed within days, with the potential that lenders will block King Street Capital’s emergency loan if it ranks ahead of their debt in terms of seniority.

It comes after a buyout offer lands from Rhode Island-based Bally’s Corp, (as first revealed by The Australian online) – a casino operator that itself has previously faced the prospect of a collapse and one DataRoom understands has been searching for acquisition opportunities in Australia since at least before 2020.

Bally’s promotes itself in a letter about the deal to Star Entertainment as a global casino-entertainment company with “a growing omni-channel presence”.

That’s at a time that new laws around cashless gaming have hit Star’s earnings hard, calling into question the viability of its future business model.

Star announced on Friday that it had entered into documentation for a senior secured $250m bridge facility with King Street Capital Management available to be drawn until April 29 at an interest rate of up to 15 per cent, for six months and with the option of being extended a further three months.

However, it stopped short in outlining where the loans would rank in terms of seniority.

Currently, Star’s super senior lenders, which are owed $100m, have the legal right to block any recapitalisation plan that the Australian listed casino operator comes up with, because any deal requires their approval.

The super senior lenders, including groups like Macquarie Group, Barclays and Deutsche Bank, have their loans secured, which means that any cash and assets worth up to $100m goes to them first in the event of a company collapse.

But some of those super senior lenders also hold the lower ranking senior debt, with the total amount overall owing being about $430m.

Star also told the market on Friday that separately, the company had entered exclusive talks and a process for refinancing proposal to secure $750m of debt, or up to $940m “in-kind”(payment other than cash) over five years, with due diligence on the deal to be carried out until at least March 18.

However, its failure to name the provider of a $750m has raised eyebrows around the market, calling into question the terms of the deal and why Star would not name the lender.

Star said that the proposal was subject to conditions, including obtaining relevant probity approvals and regulatory consents for security over the group’s assets.

Star’s proposals

Bally’s, previously backed by Starwood Capital, has its own history of insolvency troubles itself, falling into the hands of Bank of America, Wells Fargo and Sankaty Advisors after entering Chapter 11 bankruptcy in 2009, so perhaps its executives have learned a thing or two about how to turn around an embattled casino operator.

It is now largely held by hedge fund Standard General, controlled by Soo Kim, who took full ownership in 2022 through a buyout on the New York Stock Exchange.

The business has 19 casinos across 11 US states, a New York golf course, a Colorado racetrack and 13 Online Sports Betting licences in the US.

In the UK, it owns Aspers Casino and gaming brands including Virgin Games, Monopoly Casino and Bally’s Bet and has a stake in Intralot.

Its proposal involves a $250m-plus capital raising by way of convertible notes, issued to Star’s lenders, convertible into at least 50.1 per cent of Star shares, where Bally’s would underwrite the raising but allow equity investors to participate.

The understanding is that Star’s existing lenders already like the look of the Bally’s offer, because it involves debt that is subordinated, which means it would rank behind existing lenders when it comes to getting paid.

Still, the details are yet to be fully thrashed out and market experts describe Friday’s announcement as smoke and mirrors by Star, run by Steve McCann, who himself is a top poker player, in a quest to buy the business more time to come up with a more solid game plan.

Sources say Bally’s had been around the hoop in recent months, as had others, and over the years it had been doing some serious work on the casino scene in Australia in an effort to break into the local market.

Star on Friday also flagged that an earlier $650m refinancing offer from Oaktree Capital had not been finalised, so appears to be fading, with lenders adverse to the offer given the level of haircut it would require them to take on their investment.

But 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.

The deal that sees the two offshore parties secure Star’s interest in the project, the Treasury Brisbane Car Park, Treasury Brisbane Hotel and 50 per cent stake in the Charlotte St Car Park, also relieves it of its $212m future equity contribution as part of the refinancing.

Star may also net $225m through earn-outs on the Brisbane casino where it will remain an operator.

It also effectively an asset swap, where Star gets full ownership of two hotels in the Gold Coast casino complex from the partners where it currently has 33.3 per cent, in the hope of capitalising on future development opportunities.

Yet with the agreement nearly final, it may mean Bally’s is too late to the table.

Star has flagged it has been unable to sign off on its accounts and uncertainty it can continue as a going concern after years of losses, fines for breaking anti-money laundering laws and regulatory changes to stem problem gambling.

Its shares remain suspended from trading on the ASX.