Crown Decides Against $630 Million Subordinated Notes Redemption
Crown Resorts is not redeeming $630 million of subordinated notes at their scheduled first call date in July. Crown issued the notes in 2015, and they are due in 2075 but can be redeemed by Crown at any time from July 2021.
The casino giant is not redeeming the $630 million of subordinated notes in order to maintain capital. It cites the impacts of COVID-19 and regulatory inquiries as to the reason for not redeeming the notes.
“Having regard to the impact of COVID-19 on Crown’s businesses and the various regulatory investigations, the Crown Board has decided not to redeem Notes II on the First Call Date.”
“Subject to there being no major change in circumstance, Crown intends to review the role of Notes II in its capital structure in around 12 months’ time, at which point Crown expects to have improved certainty on its operational and regulatory position.”
“In the meantime, Noteholders will continue to receive quarterly interest payments in accordance with the Terms. The next scheduled Interest Payment Date is 14 June 2021.”
Helen Coonan, the under-fire executive chairman of Crown, further explained the situation.
“While I acknowledge that some Noteholders may have expected that Notes II would be redeemed on the First Call Date, the Crown Board has sought an outcome that balances the interests of all stakeholders during this period of uncertainty.”
Subordinated Notes: What Are They?
Subordinated notes are a form of debt that is sometimes called junior debt. They receive this name because they rank lower, in order of importance, to a company’s overall debts. These debts are only payable after other debts are settled. Furthermore, should a company fall into bankruptcy or liquidation, the subordinate notes rank lower than other debtors.
These notes are similar to bonds. Governments and companies issue bonds all the time. People purchase the bonds and receive a monthly or annual interest payment. This payment continues until the lender pays the bond in full.
Subordinated notes come with risks because those buying them can receive less money than they invest.
Companies, such as Crown, issue notes to raise capital instead of going through banks. Banks secure their loans against a company’s assets, and those loans tend to be over a shorter term.
Crown Decides Against Redeeming Notes
Those holding Crown’s subordinated notes learned they are not receiving their repayment as initially planned. This is not surprising when you consider the current operating climate. COVID-19 is still causing problems around the world. There is a royal commission into Crown’s affairs, too. It is the royal commission that is most likely to be in Crown’s thought process.
The royal commission public hearings revealed the Crown’s lack of anti-money laundering regulations is worse than first thought. In addition, the Victorian gaming regulator claimed Crown mislead it about the arrest of 19 staff in China back in 2016.
Crown continues making reforms in an attempt to regain some credibility. It wants its Sydney gaming licence, so it has stopped junkets and shed several board members. Crown is not, however, revealing how substantial its potential fines could be.
Australian Transaction Reports and Analysis Centre (AUSTRAC) is investigating the casino currently. AUSTRAC has concerns about Crown’s inability to comply with anti-money laundering and counter-terrorism financing.
Nobody, except AUSTRAC, knows how hefty the fine for these failings could be. Experts predict a fine of up to $400 million is on its way to Crown. No wonder it is keeping its powder dry right now.
Furthermore, there is a genuine prospect Crown loses both its Melbourne and Perth gaming licences. It would be disastrous to Crown if this happens.
Crown is highly sought-after, with Blackstone and Star Entertainment circling like vultures. Neither company will pay the asking price if a $400 million fine comes Crown’s way.
