Embattled Star Entertainment Group (ASX: SGR) isn’t behaving like a company careering towards administration with the share price up around 9% today after private equity added a potential financial lifeline to a mix of dynamics surrounding the sorely troubled business.
What excited the market today were fresh revelations that United States debt management firm Oaktree Capital Management could provide a total of $650 million in two debt facilities with a term of five years.
However, there are strings attached to Oaktree’s commitment letter and term sheet, including a comprehensive security package and intercreditor documentation which requires consents from the NSW and QLD governments and regulators.
Other conditions Oaktree is looking for include completion of due diligence in relation to specified matters, that the existing lenders enter into a settlement and or refinancing agreement on terms satisfactory to Oaktree, the execution of long-form financing documentation and more.
More funding would still be required
However, Oaktree’s proposal is not conditional on Star raising subordinated capital nor on any waiver or deferral of taxes payable to state governments.
While the casino operator’s board has added Oaktree’s proposal to numerous liquidity solutions, management has warned that, even if the proposal is accepted and proceeds, it will still require additional funding for the period prior to the proposal being implemented.
“While discussions continue with respect to a range of different solutions, there is no certainty that any of these discussions or negotiations will result in one or more definitive arrangements that might materially increase the group’s liquidity position,” the group said.
“In the absence of one or more of those arrangements, there remains material uncertainty as to the group’s ability to continue as a going concern.”
After recapitalising Australian healthcare provider GenesisCare last year, Oaktree was keen to do the same for Star by way of a convertible bond. However, the idea was unwound after the private equity operator realised the state of Star’s financial distress.
Should Oaktree’s latest proposal proceed, Star’s lending syndicate, including Westpac, Barclays and Soul Patts, could end up selling their debt to the private equity operator at a discount.
Suitor circles on Queen’s Wharf precinct
Armed with the knowledge that Star has only $79 million in available cash, other bids to pick up the casino operator’s key assets are also emerging.
Last week Star received a non-binding proposal from Hong Kong-based Chow Tai Fook Enterprises and Far East Consortium for 50% interest in the debt-laden Queen’s Wharf precinct in Brisbane along with other assets.
Both Hong Kong investors are understood to have a 25% stake in the Brisbane casino precinct which opened only weeks ago. After considering the proposal the Star board concluded that “none of the proposals provided sufficient value for the company."
In addition to the recent selloff of the old Treasury casino building in Brisbane, Star recently agreed to offload its Sydney event centre to free up working capital to keep the business afloat.
Meanwhile, with all this playing out, former Star executives are currently defending Australian Securities and Investments Commission (ASIC) allegations that they failed to stop alleged money laundering at its casinos.
Under an existing $200 million debt lifeline from lenders secured in October last year, The Star had to raise additional capital of at least $150 million to secure the second tranche of $100 million – a condition that the casino group failed to meet by the end of December last year.
