The Star Entertainment Group has secured a new credit facility of up to AUS$200 million from its corporate creditors, which will be issued in two tranches.
The agreement will come into effect after the completion of long-term documentation and the fulfillment of various conditions necessary for its implementation. The group’s existing credit limit of $450 million has been reduced to $334 million and is fully utilized.
The development of this agreement between The Star, its creditors, and various consultants took place over several weeks, aiming to finalize the preliminary financial report for the fiscal year ending June 30, 2024.
This process involved discussions with various stakeholders regarding the company’s liquidity amid adverse trading conditions and other circumstances. It was also a result of an independent investigation of The Star conducted by Adam Bell SC at the request of the Independent Casino Commission of New South Wales, which revealed ongoing regulatory shortcomings within the operator.
Under the new credit agreement, the company’s creditors will provide waivers for the next two testing periods — September 30, 2024, and December 31, 2024, with the latter date contingent on the signing of long-term documentation for the new loan and the fulfillment of other standard conditions.
With the $200 million divided into two tranches, the first tranche of $100 million will be available for use from late October until December 20, 2024, subject to certain preliminary conditions being met.
These include:
- 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;
- 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 proceeds completed before the draw down.
- Other customary conditions precedent.
Subject to more extensive conditions precedent, the second tranche is expected to be available to be drawn from the end of December with a four-month availability period following the drawing of the first tranche.
These conditions include:
- 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.
- Company raising additional subordinated capital of at least $150m.
- Other customary conditions precedent.
Assuming cash pay is elected, the all-in coupon for the new facility is 13.50% per annum, and the existing $300m term facility has been repriced to this level:
- The company has the flexibility to capitalise a component of the interest at its election.
- There is a reduction in the coupon subject to the Group’s Adjusted Net Leverage Ratio falling below 4.0x.
The maturity date for the new facility is December 2027, consistent with the existing term loan. Up to $34m of bank guarantees will be retained by the group under the existing revolving credit facility.
Following securing the new debt facility, The Star has posted its FY24 financial results, reporting $1.68bn in revenue and EBITDA of $175m, but also a statutory net loss of $1.69bn after significant items, including a $1.44bn non-cash impairment charge.
The operator noted that trading performance has “deteriorated” during the second half of the financial year, with this trend continuing into FY25. For July and August 2024, the operator has reported an EBITDA loss of $6.6m and $1.1m, respectively (2023: positive EBITDA of $20.3m and $21.6m respectively).
The Star noted that monthly operating expenses through H2 FY24 trended up following an “increase in ongoing transformation and remediation related activities offsetting The Star’s previously announced cost reduction program”.
Increases occurred for employment costs as well “with additional costs in risk and control functions” offsetting savings achieved elsewhere in H1.
“There are a number of significant challenges currently facing the business from an earnings, liquidity and balance sheet perspective,” stated Steve McCann, The Star Group CEO (subject to regulatory approvals).
“We recognise and appreciate the support provided to date by our stakeholders as The Star puts in place a new management team and strategy to implement a remediation and transformation program and return the company to a more sustainable footing.
“We have identified a range of initiatives to improve business performance and cashflow, as well as providing the organization with additional liquidity. However, time and flexibility is required to implement these initiatives.
“As we work through these initiatives, the Board and management team remain focused on demonstrating suitability to hold our casino licenses and regaining the trust and support of our regulators and the broader community while seeking to enhance shareholder value.”
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