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Why the Crown (ASX:CWN) share price is dropping lower again today

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In late afternoon trade the Crown Resorts Ltd (ASX: CWN) share price is on course to end the week in the red.

The casino and resorts operator’s shares are currently down 1.5% to $9.32.

Why is the Crown share price dropping lower today?

Investors have been selling Crown’s shares on Friday after a leading ratings agency downgraded its issuer rating.

According to the release, Moody’s Investors Service has informed the company that it has downgraded its issuer rating from Baa2 to Baa3.

Furthermore, the ratings agency has advised Crown that the Baa3 rating remains on review and could still be downgraded again in the future.

In light of this downgrade, Crown has revealed that there will be an increase in its interest costs.

The company explained that the interest costs associated with its Euro Medium Term Notes will now increase by approximately US$1 million per annum.

After which, a further downgrade would entitle the noteholder of Crown’s Euro Medium Term Notes to elect to redeem the notes with a make whole.

Why did Moody’s downgrade Crown?

Moody’s revealed that it made the move following the decision by the New South Wales Independent Liquor and Gaming Authority (ILGA) to defer its consideration on a number of applications required for the opening of gaming operations at Crown Sydney until February 2021.

The company was previous intending to open Crown Sydney’s gaming and non-gaming operations from December 2020.

Moody’s Analyst, Maadhavi Barber, commented: “The downgrade reflects our opinion that there is an increasing likelihood of material downside implications from the escalating regulatory investigations Crown is facing. In particular, the review will focus on the potential for further material negative outcomes that could not only affect the license for Crown Sydney, but could also bring forth regulatory challenges to Crown’s other licenses.”

Moody’s notes that Crown is currently being investigated following negative media reports accusing it of knowingly breaching Chinese gaming laws, circumventing visa requirements, facilitating money laundering, and using junket operators with links to organised crime.

It is concerned that adverse outcomes from these investigations could potentially result in large fines and/or changes to its licensing conditions in Sydney. This could potentially be as severe as the loss of its license.

In addition to this, it notes that the review will assess the potential for adverse regulatory actions in respect of Crown’s operations in Victoria and Western Australia.

Though, the ratings agency has acknowledged that it could change its outlook rating to stable if Crown is found to be suitable, or it can action recommendations made by the Commissioner for the NSW Inquiry and ILGA, to maintain its Sydney gaming license.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Crown Resorts Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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