Bally's Corporation bid to invest $250 million to help financially troubled Star Entertainment overcome its regulatory and financial problems. The offer is an alternative to the existing restructuring proposal at Star and, if Star accepts, would make Bally’s majority owner of the casino operator.
Bally's proposal entails Star issuing convertible notes, which would rank junior to the company's senior debt but could be converted into stock, letting Bally's acquire at least 50.1% control of Star's shares.
Bally's indicated it's also willing to consider other financing models that would keep the interests of all major stakeholders—creditors, regulators, and shareholders—the same.
Consistent with its commitment, Bally’s pledged to subscribe in full to the capital raise, and offered existing shareholders the chance to buy a considerable equity interest proportionate to their shareholdings. The company's management was convinced that its financial backing, along with its industry expertise, would create a more reliable and successful revitalization program for Star.
Star Entertainment's restructuring and Bally's takeover interest
Amid ongoing budget constraints, Star Entertainment has attempted to normalize operations via asset sales and financing transactions. To enhance liquidity, the firm recently disposed of its 50% stake in the Brisbane, Australia, Queen's Wharf casino project to its joint venture partners and co-investors for $53 million.
In addition, Star also raised a $250 million bridge loan from U.S. hedge fund King Street Capital Management and secured a broader refinancing deal of up to $940 million. All these measures notwithstanding, Bally’s argues its investment strategy offers a superior long-term option to Star's existing strategy.
Besides the initial $250 million capital injection, Bally's also showed it's willing to make other offers if the situation demands. Instead of undergoing a major structural reconstruction of Star's business, Bally's wants to preserve and improve the company's existing business model.
In addition to its interest in Star, Bally’s is also bidding for one of New York State’s three downtown casino licenses. It proposes a 3.1 million-square-foot casino complex in the Bronx. Casino operators have until the end of 2025 to wait for a decision.
Regulatory and compliance issues affecting Star Entertainment
Regulative probes and compliance mistakes have aggravated Star's financial challenges. Its recent failure to publish its half-yearly profit warning promptly automatically suspended its share trading.
Regulators have monitored Star closely after the New South Wales (NSW) Independent Casino Commission's 2022 probe led to a $100 million penalty for money laundering offenses at its Sydney casino. Another inquiry found Star didn't put enough in place to comply with current responsible gaming regulations.
Even though Star employs about 9,000 workers in New South Wales and Queensland, Australian state governments haven't provided the operator with financing. Instead, they've shied away from spending taxpayer money to save the company's problems.
Government authorities penalized past administrators in addition to cash fines. The Australian Securities and Investments Commission (ASIC) punished two former top administrators, Harry Theodore and Gregory Hawkins, for not fulfilling their duties. Regulators continue to pursue legal action against nine other former board members and executives, compounding Star's ongoing financial and regulatory woes.
