Star Entertainment shares catch a break, but at what cost?

The casino operator will get its money, but not without parting ways with a pound of flesh.

Mitchell Lawler

Mitchell stumbled upon the concept of investing when in high school, devotedly urging his parents to put some money into a handful of technology companies with increasingly popular products among his demographic – many of which have gone on to great success. It wouldn’t be until 2017, some five years later, that Mitchell became an investor of his own money. Having studied and worked as a mechanical engineer in the building services industry, Mitchell takes a methodical and analytical approach to evaluating businesses. Rather than relying purely on numbers, Mitchell drills beyond a company’s metaphorical mantle to unearth obscure patterns or competitive advantages that would go otherwise unnoticed. His expertise resides within areas such as software, consumer goods, and building services equipment. However, his quest to find quality companies that set the industry standard and flex some degree of an impenetrable position has no limits – small cap to mega cap, cosmetics to healthcare – if it’s an exceptional business it’s on his radar.

Published September 26, 2024 11:42 am AEST

Star Entertainment Group Ltd (ASX: SGR) shares haven't seen the light of day in almost a month. That might soon change, with the struggling casino operator finding the financial fortification needed to appease its auditor and release those delayed FY24 results.

At the time of writing, the Star share price remains frozen at 45 cents a pop. However, with the company's accounts expected to hit the grapevine today, we might see a thawing of its shares within today's trading session.

The meat and potatoes, though, is that Star seems to have dodged collapse… for now.

A businesswoman exhales a deep sigh after receiving bad news, and gets on with it. — Image source: Getty Images

There's a price to pay

Lenders can smell desperation, and they'll charge accordingly. The riskier the situation, the higher the cost. Staring down the barrel of possible bankruptcy, you can bet your bottom dollar that those who have come to Star's rescue aren't doing it out of the kindness of their hearts.

According to the release, the company's 'corporate lenders' have agreed to a new debt facility that will provide Star with up to $200 million in two instalments. The lifeline is subject to certain conditions, known as covenants, but the lender will waive those requirements until the end of the year.

Below is the nitty-gritty details on Star's new loan arrangements:

First $100 million instalment available from the end of October to 20 December 2024
- Subject to regulatory and government approvals
- Proceeds from the Treasury Brisbane casino sale (and other non-core assets) are to be provided
Second $100 million instalment available from the end of December 2024
- Subject to the lender being granted security over the group's regulated entities
- Subject to Star raising a further $150 million (minimum) in capital

So what will it cost Star for this 'get out of jail for not-so-free' card?

The interest rate will be 13.5% per annum. This will apply to the new loan as well as the old loan, which has been reduced from $450 million to $334 million. Assuming the full amount is held for a year, the interest alone would be roughly $72 million.

Lastly, the new loan will fall due in December 2027.

What else matters for Star Entertainment shares?

The assistance doesn't stop there.

Sources say the Queensland Government is expected to pony up about $60 million worth of tax relief. However, the relief is believed to be conditional on bonuses to executives being completely off the table until the state government is made whole.

The total financial buffer is estimated to be between $300 million and $350 million.

Editor's note: Since publication, Queensland Premier Steven Miles has clarified that the government won't provide tax relief to Star Entertainment after the casino operator rejected the condition that executive bonuses be cut until taxes are paid.

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