Star Entertainment’s lenders have offered to give the wagering group an extra $150 million to help it survive a cash crunch caused by cost blowouts at its new Brisbane casino and a slowdown in patrons visiting its gaming floors.
The company, which operates casinos in Sydney, Brisbane, and the Gold Coast, has been in turmoil since the start of the month, when its shares went into a trading halt, and it failed to publish its accounts as required by the ASX.
Star Entertainment has held talks with regulators, lenders and investors for nearly two weeks. It is seeking short-term financial relief. Bloomberg
Since then, it has been attempting to shore up its financial position, fearing the funding requirement for its Queen’s Wharf project in Brisbane and a big deterioration in revenue would force it into administration. People with direct knowledge of the matter but not authorised to speak publicly said the board was seeking to finalise terms with the lender group, and was negotiating terms including security and covenants.
However, the board and its bankers at UBS were also negotiating with state governments, the financial crimes regulator, and other potential financiers.
In an update late on Wednesday, Star told investors that it was still negotiating with its main stakeholders on ways to improve its financial position.
Two people who were bound by non-disclosure agreements and could not comment publicly said Star’s lenders had proposed a $150 million increase in an existing $350 million senior debt facility. They said that the terms had not been finalised, but were contingent on increased security over the Queen’s Wharf precinct.
The lenders argue it would provide enough money to resolve immediate cash flow issues and allow new chief executive, Steve McCann, to execute his strategy as he juggles a slowdown in patrons with a NSW government commitment to keep people in jobs.
But the sources said the lenders are only one option – the board is also negotiating with American asset managers such as Oaktree Capital Management and Cerberus Capital Management, which are willing to offer a far larger cash injection at a higher interest rate.
Star was hoping to strike a deal before the end of the week.
“The Star will provide a further update in relation to these matters when it is able to do so,” the company said in its statement late on Wednesday.
The struggling casino operator is seeking financial flexibility from backers and governments because it does not believe it has enough cash to fund a cost blowout at Queen’s Wharf and a potential multimillion-dollar fine from financial crime regulators for breaches of the anti-money-laundering and counter-terrorism laws.
It is trying to sell assets – it sold its Treasury Brisbane site late last week – but still needs more cash on hand to withstand these demands until other properties can be sold.
Market sources said growing costs at Queen’s Wharf would have put Star in breach of a loan repayment rule requiring it to have a $100 million liquidity buffer.
Star’s banks initially pushed back on pleas for short-term debt relief, arguing any new loan must be matched by government concessions and increased security over its properties.
The lenders, including Macquarie, Deutsche Bank, Washington H. Soul Pattinson, Westpac, Perpetual, and Regal Partners, are owed $450 million across two facilities. Macquarie is the biggest lender in the senior debt.
The lenders have security over Star’s holding company as part of their loans committed last year, but the group’s assets are largely held in underlying companies. They have requested security over those companies. But that is subject to regulatory approvals that are yet to be received.
Star has also sought tax relief from Queensland and NSW, the latter of which has ruled out assistance.
Queensland Premier Steven Miles last week said he would support Star, but his government has less than three weeks until it enters caretaker mode – a period immediately before a state election, one the government is expected to lose.
Star’s most recent talks come after the release of a McGrathNicol report to its lenders, which was put together at their request to assess cash flows.
The report, according to people familiar with its contents, indicated Star’s hotels were far more valuable assets to the struggling group than its casino floors.
It also said Star’s operating costs were far worse than anticipated and that its three casinos in Brisbane, the Gold Coast, and Sydney, were struggling to find patrons. However, the lenders were told their senior debt, worth about $350 million, would be easily recoverable from Star’s assets, worth close to $1 billion.
Its situation at the newly opened Queen’s Wharf in Brisbane is not expected to improve quickly, with a key anchor tenant reneging on a deal last week.
Queen’s Wharf Brisbane, which is jointly owned by Star, Chow Tai Fook Enterprises and Far East Consortium, last week confirmed luxury retailer DFS, part of the Moët Hennessy Louis Vuitton Group, had walked away from a tenancy deal. Its plans had included a three-level T Galleria Emporium and stores for luxury brands including Louis Vuitton.
Star’s shares were suspended last Monday after the company failed to file its financial results with the ASX. The trading first halted on Friday after the release of a report, authored by Adam Bell, SC, into its ability to run the Sydney casino precinct, and a report in The Australian Financial Review that said it was preparing to announce a $1.4 billion write-down of its casino assets and a major cost-cutting program.
Mr Bell’s report was scathing of Star’s previous board and management and found four compliance breaches, but was optimistic about the future of the Sydney precinct under Mr McCann, who had turned around its rival, Crown Resorts, before it was sold to New York-based investment giant Blackstone for $8.9 billion.
The NSW Independent Casino Commission is expected to make recommendations about Star’s licence in October, after Star provided its response to Mr Bell’s findings.
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