Crown Resorts, Australia’s largest gaming operator, recently sold its business to The Blackstone Group, a real estate and private equity firm. As a result, Fitch Ratings, a major rating agency, downgraded its rating of Crown’s business.
Fitch Changed Its Ratings
Soon after Blackstone completed the deal, Fitch lowered Crown Resorts’ Issuer Default Rating from BBB to BB-. The agency justified its new rating with the deterioration in Crown’s finance caused by Blackstone’s more aggressive capital structure put in place to fund the transaction. According to Fitch, this will likely form the basis of Crown’s capital structure under Blackstone.
Fitch listed some key factors that have influenced its new rating. Other than the aforementioned aggressive capital structure, the rating firm also noted that Crown doesn’t have a clear strategy, which might affect its business.
Fitch expects Crown’s post-COVID recovery to be insufficient to offset Blackstone’s aggressive capital structure. The agency also noted that Crown Resorts’ VIP demand has dropped because of its reliance on tourism. However, Fitch added that Crown’s gaming declines are less severe than those of many of its competitors.
Blackstone Implemented an Aggressive Capital Structure
The so-called aggressive capital structure refers to Blackstone’s recently announced plans. The company is about to debt finance $3.7 billion (in USD) of the $6.5 billion purchase price. In addition, it would allow entities in the new group to obtain commitments for a further $340 million under a super senior revolving credit facility to finance its business operations. Fitch predicts that this will cause Crown’s leverage to deteriorate to around 7.5x on a normalized basis, based on the initial funding for the transaction only.
Meanwhile, Crown’s revenues will likely continue to increase as the company recovers from the pandemic. Its revenues will likely go up by 15% in 2022, 50% in 2023 and 10% in 2024.
Fitch Withdraws Its Ratings
Fitch’s ratings were maintained on Rating Watch Negative, meaning that it believes Crown’s rating could be downgraded further. According to the agency, Crown will likely make this information public once Blackstone’s review of its business is complete.
Since Crown Resorts will be delisting from the Australian Stock Exchange, this will be Fitch will no longer be evaluating its business. Under Blackstone’s ownership, Crown will transition to a privately-owned company and, as a result, the agency will withdraw its ratings. Fitch concluded that it will no longer provide ratings or analytical coverage for Crown.