Casino giant Bally’s in $250m plan to keep The Star in Brisbane

The US casino and gaming giant has declared it is prepared to “move quickly” to secure a binding agreement to help keep the embattled company afloat. The alternative refinancing proposal is also seeking to reverse a decision by The Star, announced after the market closed last Friday evening, that it had secured an agreement with its Hong Kong partners to offload its 50 per cent interest in the $3.6 billion Queen’s Wharf development to refocus its Queensland operations on the Gold Coast casino.

Although full details of the Bally’s funding offer have not been disclosed, The Star describes the deal as an “unsolicited, non-binding proposal for additional funding” that has come in the wake of an existing $940 million debt deal with alternative investment funds group King Street Capital Management. The latter was announced last Friday evening in tandem with its planned Brisbane exit, but that deal has yet to be finalised.

In an announcement to the market this morning, The Star says that Bally’s proposal “outlines a possible transaction which states, among other things, that Bally’s Corporation would provide a capital raise of at least $250 million, pursuant to which The Star would issue convertible notes subordinated to The Star’s existing senior lenders”.

“The convertible notes would be convertible into at least 50.1 per cent of The Star’s fully diluted ordinary shares.”

The Star says that Bally’s plans to underwrite the entire amount of the capital raise, but “would be supportive of providing The Star’s existing shareholders the right to participate in a significant portion of the offering on a pro rata basis”.

“The letter does not include any details of other proposed terms and conditions.”

However, in the letter forwarded to The Star, Bally’s remains “very open to discussing a larger transaction depending on our discussions with respect to Star’s liquidity and capital needs”.

“We would also be happy to explore alternative structures that would similarly preserve value for all key constituents, including regulators, creditors, equity holders and employees,” says the US gaming group which owns and operates 19 casinos across the US.

“Our proposal is fully funded and not subject to any financing contingencies.”

Bally’s says that at the end of December, it had US$171 million of cash on hand and no amounts drawn, other than letters of credit, on a US$620 million revolving credit facility.

“In short, we have ample unrestricted liquidity to complete this transaction expeditiously,” the company says.

“Importantly, our proposal delivers more than capital: Bally’s would partner with Star in deploying our significant operating experience in turning around casino assets and growing highly successful casino businesses globally.

“Our team has successfully improved more than 20 individual property acquisitions over 15 years in a variety of challenging circumstances, across the entire spectrum of gaming regulatory environments and market conditions.”

Bally’s says it is prepared to invest “significant time and resources” to work with The Star to return the group to “profitability and sustainability”.

“We have retained experienced financial and legal advisors and are prepared to engage immediately,” says the company.

“We are also confident in our ability to expeditiously complete probity review in light of our long history with of regulated operations, including in Nevada and New Jersey, as well as with the UK Gaming Commission.

“We would also expect to work closely with Star’s current special master throughout the process.”

Special master is a reference to special manager Nick Weeks who is overseeing The Star’s remediation program.

“Our strategy for Star is built on the simple premise that keeping in place Star’s current businesses, assets and platforms will provide a stronger and more successful business over time,” says Bally’s.

“While we understand the rationale for Star’s recently announced transactions, we believe that our proposal offers Star and its stakeholders far greater value and operational flexibility, as well as the upside from retaining Star’s current projects and other assets.

“We have already completed substantial due diligence based on publicly available information and leveraging our understanding of the Australian gaming market and extensive experience in the international gaming sector.

“As a result, we are well positioned to work with Star in a focused manner to deliver a binding proposal within a short period of time. We welcome the opportunity to engage in meaningful dialogue with your key stakeholders to ensure that they understand our approach, and to invite them to participate in the proposed transaction.”

It remains unclear whether the Bally’s offer will progress any further, particularly in light of The Star announcing last Friday that it is selling its 50 per cent interest in the Destination Brisbane Consortium to Hong Kong-based joint-venture partners Chow Tai Fook Enterprises and Far Eastern Consortium for $53 million.

The deal would see The Star also lift its 33 per cent stake in its development projects at The Star Gold Coast being undertaken with the Hong Kong partners to 100 per cent.

The Star announced it had already received $35 million of the $53 million cash consideration from its partners.

However, in a recent interview with Inside Asia Gaming, Bally's Corp chairman Soo Kim hinted that the group was interested in maintaining The Star's business assets in Sydney, Brisbane and the Gold Coast as is.

"It’s still early, but in general, if something is worth doing, it’s worth doing completely," Kim told the publication.

"We’ve seen reports of interest in individual properties, but I’m not sure breaking them up would work. Some would flourish, but others might not. Keeping them together may actually ensure they all continue operating as casinos. That’s just an observation we had."

Following a "mystery shopper" tour of the sites, Kim says the Bally's team looked at the strengths and weaknesses of each of The Star's properties.

"The Star Sydney property has good bones, but it's clear why it has been underperforming," he told Inside Asia Gaming.

"The Gold Coast property is older but remains the only one of its kind in that area, so there’s potential. The Brisbane property, with the Queen’s Wharf development, is a huge step up from what was the Treasury building.

“We weren’t there to meet management; we don’t have a position. We were just mystery shopping - walking the floors to get a feel for the assets and to put context to the reports and numbers we’ve been seeing.”