It’s been a busy time for investment bank Barrenjoey, and the latest job that has had its attention has been aiding Star Entertainment with renegotiating its debt.
DataRoom understands that the Australian investment bank has advised on the negotiations with Star Entertainment’s lenders in recent days to amend its current banking covenants in an effort to avoid breaking the terms originally agreed.
Among Star’s lenders are understood to be the big four Australian banks.
The talk is that Westpac is averse to lending to casinos due to the changing regulation and recent revelations of its breach of anti-money laundering and counter-terrorism financing laws, and is keen to distance itself from the sector.
Star Entertainment’s net debt was $1.15bn at June 30 and its market value is now $1.78bn.
At June, it held $527m of US Private Placement debt, with $64m due in the 2026 financial year.
It has $94m of bank debt due in the 2024 financial year and $540m due in fiscal 2025.
Lenders in the USPP market have been less tolerant when it comes to companies hitting rough waters.
Last week, New Zealand retirement and aged-care provider Ryman raised $NZ902m to pay off its $NZ709m worth of US Private Placement Notes.
Overall, Star’s debt covenant is 3.75 times its earnings before interest, tax, depreciation and amortisation.
With the latest earnings prediction, its debt is now between 3.5 times and 4 times, say sources.
Its off balance sheet Brisbane casino development joint venture, of which it is a part owner, is understood to have between $2.4bn and $2.6bn of debt.
Star, which reports results this week, did not want to comment on the situation, but it comes as the noise continues to get louder about an equity raising for the company.
Investors would support a raise but only at a steeply discounted price.
Yet the trouble for Star is, with regulatory changes to the industry in NSW still up in the air and clarity lacking still around fines and penalties linked to its breach of anti-money laundering and counter-terrorism financing laws, it is impossible, in some people’s minds, to gauge the exact amount it needs to get through the door.
As earlier canvassed by DataRoom, the company could place property up for sale, but the question is how many buyers would exist when the future of Star remains unclear.
Debt continues to remain the challenge right across the board for companies in the current environment – from those struggling with large loans to those trying to embark on buyouts only to find that the cost of funding does not make the deal stack up.
Lending sources say that various companies subject to leveraged buyouts by private equity firms in Australia over recent years have already breached their debt covenants.
Last week, BGH Capital was said to be on the brink of buying the Australian Venue Company from Kohlberg Kravis Roberts, but the deal is yet to complete, with suggestions earlier that BGH was struggling to make a deal stack up with the current funding costs.
Earlier this month, Star said it would have a $400m to $1.6bn impairment on its Sydney casino.
Compounding problems is the proposed NSW state government tax for poker machines and casinos.
Barrenjoey, which was recently appointed to advise on the Virgin Australia, had earlier been advising Star Entertainment to determine whether it could buy Crown Resorts.
Should the company tap the market, it is almost certain to be on the ticket.
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