Star Entertainment banking dispute delays results, while Bally’s debt balloons

It’s the last roll of the dice for what was once one of the country’s biggest casino groups.

Star Entertainment, barely alive and gasping for breath, was due to deliver a set of results this week that, while extending the enduring pain of long-suffering investors, hopefully would have received the blessing of its directors.

That is now under a cloud after yet another dispute with its increasingly exasperated bankers, in a re-run of earlier events that again have delayed the earnings results.

Signing off on the accounts would have allowed regulators to begin probity checks of the beleaguered group’s American suitor, Bally’s Corporation, before it assumes control.

It is acting in concert with local pub baron Bruce Mathieson, and between them, they have injected around $300 million into Star to keep the operation afloat.

Along with the usual personal checks, Bally’s will also need to pass a financial suitability test.

It will need to satisfy gaming regulators in New South Wales and Queensland that the now slimmed-down Star will have adequate long-term funding to survive.

The Star purchase is small beer by Bally’s standards. But the American company has a lot going on, including a massive overhaul of its Chicago casino that has stretched its finances.

Its most recent accounts show a company with more than $US7 billion ($11 billion) in liabilities, half of which is listed as long-term debt alongside a large chunk of lease liabilities.

The debt burden is around 10 times the market value of Bally’s Corporation.

Liquidity is also tight for the US company. Almost $US1 billion in short-term debt must be repaid within the next 12 months, covered by just $US490 million in easily saleable assets.

In February, these strains were enough to prompt ratings agency Fitch to downgrade Bally’s debt to B-.

That may hinder Bally’s ambitions to quickly turn around the Star’s loss-making operations and could complicate the business plan that it must present to Australian regulators as part of its probity check.

But Star’s directors face more immediate challenges.

Angry bankers on the hunt

Just weeks ago, Star’s former partners in the troubled Queen’s Wharf development in Brisbane were threatening to walk away from their planned purchase at the final step, jeopardising Star’s tenuous grip on life.

Now, the banking syndicate has directors against the wall.

The banks are refusing to grant waivers on covenants over $430 million worth of loans, which would prevent directors from signing off on the accounts.

Sources close to the transaction believe the banks are attempting either to extract more assets as security over the debt or to impose even more punitive fees on the company.

Last year, a desperate Star was strongarmed into paying a whopping 13.5 per cent on its refinanced debt, some of which included a 1 per cent quarterly payment to waive covenants.

Those waivers were believed to run to the end of September. Without them, the company will be in breach of its debt covenants and directors cannot sign off on the accounts. Instead, they will be forced to release an unaudited version.

In a statement to the ASX, the company said that it previously had made it clear that “it continued to rely on the support of its lenders”, which included covenant waivers after June 30.

It told the exchange that it was in discussions with lenders, but had so far refused to accept the terms, which the company found unacceptable.

For Star to keep the Bally’s deal on track, it may have to hand over extra cash.

But wait, there’s more

US group Bally’s may have bought into the Star’s ongoing corporate soap opera for a song.

But its own stretched financial position limits its tolerance for added financial pain.

The biggest threat, which could be known within a fortnight, is the size of the fine that will be imposed on Star for its extensive history of breaching the Anti-Money Laundering and Terrorism Financing Act.

The case is before the Federal Court, and AUSTRAC — the federal agency responsible for policing the laws — has argued that a fine of around $400 million would not be excessive, given Star’s four years of hosting known criminal syndicates out of Macau.

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Star has made provisions for a fine of around $100 million and has begged the court for mercy, arguing that anything more could tip the company into receivership.

That’s unlikely to sway the court, particularly given Star’s rival, Crown Entertainment, was slapped with a $450 million fine just two years ago for allowing the same criminal gang to access its gaming rooms.

Insiders say Bally’s chairman, Soo Kim, has confided that anything more than $200 million could be a deal breaker.

A decision on the fine is expected sometime in September, which allows plenty of time for more drama.