The $300m Star Entertainment rescue package gives it a lifeline, but things could look very different

A long awaited Star Entertainment rescue package has finally been unveiled and the company has staved off administration…for now. But things could look very different in the immediate future at the company.

Why Star Entertainment needed a rescue package

Star Entertainment’s (ASX:SGR) finances have been in a continually deteriorating state. It closed CY24 with a $79m cash balance, but was burning through $50m a month. And it cannot just keep borrowing more money forever. Its debtors had a gutful of management’s pleas and excuses (having heard it all before), the NSW and Queensland governments are unwilling to give it sufficient tax relief (even if only because of the PR problem it could cause).

Star Entertainment’s problems are a mixture of bad luck and also poor management decisions. The pandemic has erased a significant proportion of its high-roller market. And the company has had varying legal problems which no doubt would be causing hefty legal bills. A warning sign was that it its event centre to Foundation Theatres for $60m and the leasehold of its Brisbane building to Griffith University for $67.5m, both amounts supposed to come in that same week. It also agreed to sold 50% of its Brisbane precinct to its JV partners for just $50m cash and interest in its Gold Coast property.

SGR was unable to lodge its accounts for the first half of FY25 (the 6 months to December 31) because its auditors could not state it was going a concern…because had they done so, that’s a whole set of careers destroyed. As a result, shares have been suspended since then as the company tried to come up with more money. Various leaks to the media suggested that certain packages had nearly been secured, but would-be financiers pulled out (one being a $750m package from Salter Brothers). But now, it looks like a lifeline has been secured.

The finer details of the Star Entertainment rescue package

On Monday night (April 7), SGR entered into a binding term sheet with casino operator Bally’s Corporation for $300m, some of which would be convertible notes. $100m was expected to be paid within a couple of days, with the balance paid following shareholder approval and regulatory approvals.

Star is also selling its stake in the Brisbane development so that is another source of financing too. It may also replace $100m of Bally’s money from pub baron Bruce Mathieson, who is a major shareholder in Star. The interest rate on the Bally’s package is 9% per annum, payable in cash or kind. The conversion price is 8c per share and the maturity is July 2, 2029. A vote is proposed to be held in late June 2025. SGR also told investors it is finalising its 1H25 accounts and intends to lodge them ‘as soon as possible’.

A day later, just late night (April 8), SGR received a commitment from the Mathieson family for $100m, thus reducing the Bally’s deal to $200m. It will leave the pair of investors with just over half of the company.

Changes will be afoot

Bally’s chairman Soo Kim has been reported as saying that Star’s casinos could star making money ‘within a reasonable amount of time’. Kim will join the board of Star, and we’d be surprised to see this as the only change to Star’s board. We may potentially see Star delisted, because if Bally’s and Bruce Mathieson own over half of the casino – what point is there left for it to stay listed and be subject to the fluctuations of the market?

But the good news for retail investors in Star is that they won’t lose all their money they’ve invested – at least just not yet. Granted, many of them have probably lost a lot of money already.

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