Ratings agency Fitch is anticipating a multi-notch downgrade of Australia’s Crown Resorts should the casino operator complete the full sale of its shares to US private equity giant The Blackstone Group.
The US$6.5 billion transaction, to be voted on by Crown shareholders in the second half of 2022, has been agreed in principle after Blackstone increased its bid from an initial AU$11.85 per share to AU$13.10 per share in February.
While the US firm has not indicated its target capital structure for Crown, Fitch expects a far more aggressive structure with higher leverage than traditional operators if Blackstone’s history in the US gaming sector is any guide. Blackstone currently owns the real estate of Bellagio, MGM Grand, Mandalay Bay and CityCenter in Las Vegas, the operations of which are all leased out to MGM Resorts.
Noting that leverage above 3.0x could see Crown’s rating downgraded, Fitch said a scenario analysis on how Crown’s financial profile would be affected by a similar separation of gaming operations and real estate suggests net leverage of between 5.6x and 7.2x in the financial year ending 30 June 2024.
“We expect that in this scenario, any rating action would result in a multi-notch downgrade, as such leverage levels are more commensurate with the metrics of ‘B’ category rated gaming issuers or below,” the agency said in a note.
Currently rated “BBB”, Fitch anticipates a downgrade to either low “BB” or high “B” for Crown with the potential for an even larger fall mitigated by Australia’s strong regulatory environment and the protections it affords.
The need to obtain regulatory approval in multiple Australian states before splitting Crown’s real estate from operations could also delay the implementation of any ratings actions by Fitch.
Crown currently owns and operates three resorts in Australia – Crown Melbourne, Crown Perth and Crown Sydney.
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