Moody’s places Crown Resorts rating on review for downgrade

Moody’s Investor Service has placed Crown Resorts’ rating on review after its acceptance of an acquisition offer from Blackstone.

Australia.- Moody’s Investors Service has placed Crown Resorts’ Baa3 issuer rating on review for downgrade. It says the outlook for the company has changed after Crown Resorts’ board accepted an acquisition offer from Blackstone.

After months of negotiations, Crown’s board unanimously backed investment firm Blackstone Inc‘s offer to acquire all the shares of Crown Resorts in a deal that values the firm at AUD8.9bn (US$6.36bn). The sale is expected to be complete in the second half of 2022.

Moody’s said the transaction would likely lead to a deterioration of Crown’s key debt metrics and less conservative financial policies than are currently factored into the rating. 

It said: “While the full details of the proposed transaction and Blackstone’s ultimate plans for Crown’s ongoing business and financial profile have not been made public yet, Moody’s expects that the proposed transaction, if completed, will likely lead to a deterioration of Crown’s key debt metrics and less conservative financial policies than currently factored into the rating.

“Given a successful transaction would put Crown under private equity ownership, and that the private equity business model typically involves more aggressive financial policies and a leveraged capital structure to extract value, Moody’s believes that a successful transaction could likely lead to a downgrade, perhaps of multiple notches.”

However, Moody’s notes that Crown could continue to maintain its rating should the transaction be unsuccessful or is funded in a way that allows Crown to continue to maintain adjusted financial metrics in line with Moody’s current expectations.

It said: “The company’s financial strategy and risk management is a key component of our governance risk assessment framework and today’s rating action considers the uncertainty around Crown’s future financial strategy from a potential transaction.”

The deal will need to be cleared by the Foreign Investment Review Board (FIRB) and by gaming regulators in the states where Crown operates.