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Star Entertainment Group Ltd (ASX:SGR), one of Australia’s leading casino operators, has been in troubled waters for almost a month, with its shares frozen at 45 cents. The reason? The company has been unable to release its FY24 results, raising concerns about its financial stability. However, it seems Star has found the financial support it needs to appease its auditors, which could pave the way for its stock to start trading again soon.
Although the exact timing of the release remains uncertain, the company’s accounts are expected to surface today. If that happens, investors may finally see the Star share price thaw and return to activity on the ASX.
Avoiding Bankruptcy, for Now
While Star has managed to dodge bankruptcy for the time being, it's clear that the road ahead won't be easy. The company has secured a lifeline, but at a significant cost. Lenders, sensing the casino operator's desperation, have charged a steep price for their assistance. The rescue package comes with stringent terms, as is often the case when a company is on the brink of collapse.
Star’s ability to secure financing has come as a relief to many, but the company remains in a precarious position, with its future still hanging in the balance.
A New Debt Facility with a Steep Price
In its recent announcement, Star revealed that its corporate lenders have agreed to provide up to $200 million in a new debt facility, to be released in two instalments. However, this financial lifeline comes with strict conditions, known as covenants, that will be waived only until the end of 2024.
The first instalment of $100 million will be available between the end of October and December 20, 2024, but only after receiving regulatory and government approvals. The proceeds from the sale of Star’s Treasury Brisbane casino, along with other non-core assets, will also contribute to this cash infusion.
The second instalment of $100 million will be available at the end of December 2024, contingent upon the lender being granted security over Star’s regulated entities. Additionally, the casino operator must raise a minimum of $150 million in capital as part of the agreement.
The Cost of Survival
So, what price is Star paying for this much-needed lifeline? The interest rate on the new loan has been set at a whopping 13.5% per annum. This high interest rate will apply not only to the new loan but also to Star’s existing debt, which has been reduced from $450 million to $334 million. Over the course of a year, the company could face interest payments of approximately $72 million if the entire loan is drawn.
Moreover, the new loan will fall due in December 2027, putting a timeline on Star’s ability to stabilize its finances and meet its obligations.
A Long Road Ahead
While the new debt facility offers Star a temporary reprieve, it is by no means a permanent solution. The company must still navigate a complex web of regulatory requirements, asset sales, and capital raising efforts if it is to regain solid financial footing. The high interest rate and the terms attached to the loan further emphasize the challenges Star faces.
