Crown Banking on Apartment Sales as Rating Agency Drops its Score

Crown Resorts

Crown Resorts is in danger of having to repay millions if credit rating agencies continue to devalue the casino operator.

The Guardian reports that Crown would have to pay back $175 million and is banking on selling luxury apartments at its Barangaroo development in Sydney, to reduce its debt load.

Crown is waiting for a final report from the New South Wales government’s inquiry into its affairs, which is due to be handed down by Monday.

In late November, rating agency Moody’s cut Crown’s score to BAA3, one notch above junk.

It also flagged it might cut it further because the NSW Independent Liquor and Gaming Authority delayed making a decision on whether Barangaroo’s gaming floors could open until after the inquiry reports back.

A junket or “below investment grade” rating would make it harder and more expensive for Crown to borrow money.

Crown said that Moody’s withdrew from rating $175 million in debt, sold as euro medium-term notes, that Crown has had on its books since before it was spun out of Packer family company Publishing and Broadcasting Limited in 2007.

The notes, which are believed to have been sold to a single Japanese investor, remain rated by two other agencies, Fitch and Standard & Poors, at BBB, which is two notches above junk.

Rating Downgrade Could Spell Disaster for Crown

If both Fitch and S&P follow Moody’s and withdraw their ratings, or downgrade them to junk, the investor could demand repayment of the full $175 million-plus an additional “make-whole premium”.

The make good payment would compensate the investor for interest missed out on between calling in the loan and its due date in 2036.

While it is not clear how big this payment could be, it is likely to be at least in the tens of millions of dollars as interest rates are at historic lows and the notes have 15 years left to run.

It is believed Crown would be able to repay the note and the premium, but doing so would increase the risk it would need to raise more money for its other needs – capital that would probably be expensive given the company’s poor credit rating.

Crown is close to settling on sales of apartments at the Barangaroo development, a move that will enable it to quickly reduce its debt levels.

The company obtained a loan of up to $450 million last year to finish off construction of the project and needs to repay the money by the end of this year.

It has so far drawn at least $220 million from the facility.

Crown had expected to thrust open the doors to the gaming floor at Barangaroo before Christmas but was forced to put back gambling operations until after February 1, when the former judge who has been conducting the inquiry, Patricia Bergin, hands her report to the ILGA.

It has, however, been able to open bars and restaurants in the complex.

As part of efforts to stave off regulatory action, Crown has already effectively banned offshore junket operators and ended a secret deal under which Packer got special briefings from the company.

However, Moody’s has said Crown’s future hinges on what action the NSW government takes after receiving Bergin’s report.

“We also view there to be an increased likelihood of material downside implications from the escalating regulatory investigations Crown is facing,” Moody’s said in a November note to clients.

“These could include large fines and/or charges to Crown’s licensing conditions in Sydney, with licence loss being the most severe, although still unlikely, outcome.”

“ILGA’s review also raises the potential for regulators of Crown’s operations in Victoria and Western Australia to undertake their own reviews, with possible negative consequences for Crown’s business in those states.”

William Brown


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