Star Entertainment may get respite with Oaktree Capital swooping in

Star Entertainment Group has seen better days. Hemmed in by regulators and crushed underneath a weighty debt pile, the prominent Australian operator is teetering. Now though, the operator may get a reprieve with Oaktree Capital Management, an investment management firm, offering to refinance the company’s AU$650m debt, roughly $413.40m.

Star details possible debt financing by Oaktree Capital Management

The announcement has had a quick rejuvenating effect, with the operators' stock inching up 12% over the past five days. Oaktree Capital Management has been looking to buy out the operator’s debt at a discount from current lenders, among which are Barclays, Washington H Soul Pattinson and Westpac.

Some stakeholders have already dropped their share in the company. Star detailed the case through a filing at the Australian Stock Exchange.

The proposal can have a serious impact on future company operations, although Star itself has tentatively noted in public that it was not sure that even if its lenders agreed to sell the debt it would accept Oaktree’s proposal.

"The Board of The Star will consider the Proposal. There is no certainty that the Proposal will be progressed, that the conditions of the Proposal will be satisfied, or that the Proposal will be implemented. If The Star proceeds with the Proposal, the Company will require additional funding for the period prior to the Proposal being implemented."

The cash crunch Star is facing is likely to continue, with a number of challenges emerging. Apart from the regulatory investigations that have put operators such as Star and rival company Crown Resorts on the backfoot, the firm is also struggling with a decline in visits, including lethargic tourism performance with fewer people choosing to visit the resorts hosted by the firm.

There is a "but" before accepting any deal

Even if Star is willing to accept the deal, the entire process will have to go through important regulatory checks and balances, such as nods from New South Wales and Queensland, due diligence, and what Star has called a security package.

Oaktree is likely to pursue a more aggressive negotiating stance as Star is embattled and needs to finance its operations. Star has explained that the proposal is at least not subject to Star raising subordinated capital, nor should it pursue a waiver or deferral of tax payable to state governments for example.

Although uncertainty still persists, Star Entertainment may find respite after a string of calamitous events and increased public and regulatory scrutiny paired with financial challenges.

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