Tension building over way forward for Star Entertainment: sources

Star Casino Queen's Wharf development. Picture: John Gass

Tension is believed to have been building behind the scenes in recent days between Star Entertainment Group’s advisers and the casino operator’s lenders over their refusal to accept recapitalisation plans, including that put forward by Oaktree Capital Management.

It comes as The Australian reports that a deal is close to being brokered to sell Star’s stake in its Brisbane asset to its joint venture partners for up to $50m.

Star has insolvency firm FTI Consulting helping it through its decision-making process whether it can continue to trade as a solvent company while in Safe Harbour protection while also working with UBS, and lenders are represented by McGrath Nicol.

DataRoom understands that the Steve McCann-led casino operator believes it has a sustainable operating model in the future, despite new cashless gaming rules that have crimped its earnings.

The best hope for lenders is to take a $650m recapitalisation plan on offer by California-based alternative investor Oaktree that sees $200m paid to lenders and the remainder used to operate the company.

DataRoom had revealed that under the proposal, Star’s super senior lenders, including Deutsche Bank and Macquarie Group, would be paid back their $100m they are owed in full, while senior lenders would get 65c in the dollar.

The lenders are owed about $430m, so the deal would mean they take a haircut, and they have rejected the offer.

But should the company wind up in voluntary administration, the casino licences would be cancelled, and what would be left to liquidate to pay back creditors would be far less valuable.

Star’s main real estate assets are its hotel casino site at Sydney’s Pyrmont, which is subject to a long-term government lease, its Gold Coast casino, and its half share of the Queen’s Wharf development that includes a hotel, casino and apartments, in Brisbane.

That project is jointly owned by Star and Chow Tai Fook and Far East Consortium, and has $1.6bn of debt owing, half of which Star has guaranteed, with payments due this year.

Star has told the market that it had received several confidential, indicative and non-binding proposals from Chow Tai Fook and Far East to buy The Star’s 50 per cent interest in its Destination Brisbane venture (Queen’s Wharf), along with other assets.

At the time, they said the proposals did not provide sufficient value for The Star, but continued to engage with the parties to see if a satisfactory sale could be negotiated.

It is understood that the original proposal by them was to take the operation for a nominal sum, and the latest, is worth about $50m in a move that will prolong its survival, although some see it as a short term fix.

Sources close to the situation were expected to find out by Thursday or Friday if voluntary administration was the route that the company would be taking, but that appears off the cards for the short term.

Star has been bleeding cash since new cashless gaming rules have been introduced, but there are differing views on the impact of cashless gaming on Star’s business.

Some have suggested that cashless gaming is not a sustainable earnings stream for Star – others say that examples where this has been introduced elsewhere globally show that while there is an initial hit to earnings, they rebound in future years, as gamblers adjusted to the new rules.

A voluntary administration for the cash-strapped casino operator would see all of its liabilities frozen and would call into question the future of its 8000-odd workers just months before a federal election.

The appointment would free administrators up to work with the company’s assets without having to worry about paying its bills, but super senior lenders owed $100m would be paid back in full because their debt is secured against the company’s cash from asset sales.

The secured creditors also have to give their approval for any decisions made by the voluntary administrators.

In a voluntary administration, Star’s class action would become an unsecured claim, as would gaming tax payments owed to governments and debts owing on Queen’s Wharf in Brisbane.

Star has been suspended from trading after it was unable to sign off on its accounts last week, and as it weighed last-minute recapitalisation options.