Australia’s Star Entertainment Group has announced a commitment letter by its lenders for a new debt facility of up to AU$200 million (US$136 million), payable in two separate tranches and with each subject to certain conditions being met.
The facility is aimed at buying Star and its recently appointed CEO Steve McCann time to restructure the business amid concerns the company is sitting on the edge of collapse following a second finding of unsuitability in NSW and a cost blowout at Queen’s Wharf Brisbane, opened last month.
Star, which has also postponed release of its FY24 financial results, said late Wednesday that the new debt facility would become effective upon completion of long-form documentation and satisfaction of various conditions precedent. The Group’s existing AU$450 million (US$307 million) facility has subsequently been reduced to AU$334 million (US$228 million) which is fully drawn.
The new facility includes covenant waivers for the next two testing dates on 30 September 2024 and 31 December 2024, the latter of which is also subject to execution of long-form documentation for the new debt facility and other customary conditions.
The first of two AU$100 million tranches will become available to be drawn from the end of October 2024 through to 20 December 2024 and is subject to the provision of unsecured guarantees from some of the group’s regulated entities and enhanced security granted to lenders; regulatory consents and government approvals as required for guarantees and enhanced security for the lender group; and the establishment of a disposal proceeds account with a credit balance of an amount representing the net proceeds of the sale of the Treasury Brisbane casino building and any other non-core asset sales completed before the draw down.
The second tranche, potentially available from the end of the year for a period of around four months, has more stringent conditions attached to it.
These include the receipt of required regulatory consents and finalization of documentation for the granting to the lender group of security over the group’s regulated entities; provision of information in relation to the group’s long-term strategy; all lender approval of the group’s strategic plan and long-term financial forecasts; and the company raising additional subordinated capital of at least AU$150 million.
The December 2027 maturity date for the new facility is consistent with the existing term loan with the group to retain up to AU$34 million of bank guarantees under the existing revolving credit facility.
Star’s perilous financial state is the result of mounting challenges since the first Bell inquiry in 2022 found the company unsuitable due to serious lack of compliance, including the illegal use of China UnionPay cards to fund gambling at The Star Sydney, its dealings with Asian junket operator Suncity Group and the company’s response to independent audits of its anti-money laundering (AML) and counter terrorism financing (CTF) controls.
The mandatory implementation of cashless gaming technology and increased regulatory requirements have seen operational costs blow out, while visitation and player spend – particularly in the premium gaming segment – has plummeted.
Star is also facing multiple shareholder class actions and has set aside AU$150 million to cover a looming action by Australia’s AML watch dog AUSTRAC.
Although the NSW government last year agreed to defer the implementation of a significantly increased tax on poker machine revenues, it recently rejected a request for further assistance. Reports claim the Queensland government may be more amenable to some form of tax relief.
Star operates three integrates resorts – The Star Sydney in NSW and The Star Gold Coast and The Star Brisbane in Queensland.
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