MELBOURNE: Moody’s Investors Service (Moody’s) has downgraded Crown Resorts Limited (CWN) issuer rating from Baa2 to Baa3 and that the rating remains on review for downgrade.
As a result of the downgrade, there will be an increase in the interest cost associated with Crown’s Euro Medium Term Notes of approximately USD 1 million per annum. A further downgrade would entitle the note holder of Crown’s Euro Medium Term Notes to elect to redeem the Notes with a make whole.
The rating action follows the decision by the New South Wales Independent Liquor and Gaming Authority (ILGA) to defer its consideration on a number of applications required for the opening of gaming operations at Crown Sydney until February 2021.
Crown had previously planned for Crown Sydney’s gaming and non-gaming operations to open progressively from December 2020.
“The downgrade reflects our opinion that there is an increasing likelihood of material downside implications from the escalating regulatory investigations Crown is facing. In particular, the review will focus on the potential for further material negative outcomes that could not only affect the license for Crown Sydney, but could also bring forth regulatory challenges to Crown’s other licenses,” says Maadhavi Barber, a Moody’s Analyst.
Crown is currently being investigated by a number of Australian regulatory bodies and authorities, following negative media reports in July 2019 that accused it of knowingly breaching Chinese gaming laws, circumventing visa requirements, facilitating money laundering and using junket operators with links to organized crime.
Specifically, Moody’s considers that adverse outcomes from these investigations could potentially result in large fines and/or changes to Crown’s licensing conditions in Sydney, with license loss being the most severe, although still unlikely, outcome. Furthermore, the review will assess the potential for adverse regulatory actions in respect of Crown’s operations in Victoria and Western Australia.
Moody’s expects Crown’s earnings from its gaming operations will remain weak in the fiscal year ending June2021 (fiscal 2021) due to the pandemic. The impact of job losses and asset price declines may continue to weigh on discretionary consumer spending even after current virus containment measures are
The outlook could be changed to stable if Crown is found to be suitable, or Crown can action recommendations made by the Commissioner for the NSW Inquiry and ILGA, to maintain its Sydney gaming license. Although a stabilization would also depend on the magnitude of any potential fines.
The rating could be downgraded if Crown is unable to action recommendations by the Commissioner and ILGA, and/or the Sydney license is revoked. A downgrade could be multiple notches if this leads to Crown being deemed unsuitable to hold its other licenses.