Melbourne-based casino operator Crown has terminated its $1.75 billion acquisition of Oaktree Capital-backed Cannery Casinos, and instead will pay $370 million for a 24 percent stake in the company.
Crown will pay $320 million, plus a $50 million termination fee in the transaction. Cannery owns and operates two casinos in Las Vegas as well as the Meadows Racetrack and Casino in Pennsylvania. Crown, run by Australian billionaire James Packer, also will get the option to complete a buyout deal within two years for $1.4 billion.
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Oaktree holds a 42 percent stake in Cannery. The firm first invested in the casino operator in 2005, when private equity investments in casinos were still a relatively rare phenomenon.
Stephen Kaplan, a principal at Oaktree, said he was pleased with the company’s “relative” performance in a “difficult economic environment”.
Casinos have been hit hard in the economic downturn. Harrah’s, bought by TPG and Apollo Global Management last January for $27.8 billion, suffered a $5.3 billion loss in the fourth quarter of 2008 and carried a $24.5 billion debt load as of 31 December 2008. Harrah's said in a SEC filing Tuesday that its cash flow may not be enough to fund its debt obligations, forcing the company to seek some kind of restructuring.
“We cannot assure you that our business will generate sufficient cash flows from operations, or that future borrowings will be available to us to fund our liquidity needs and pay our indebtedness,” the company said in the filing. Moody’s Investors Service included Harrah’s on its “bottom rung” list of the 283 US companies at most risk of default this year.
Station Casinos, backed by Los Angeles-based Colony Capital, has also been battling its debt load for months, and reached an agreement with its bondholders and senior lenders to delay interest payments to 15 April. Colony bought Station in 2007 for $8.8 billion with the Fertitta Family.
Station has said it is considering a restructuring under the protection of Chapter 11.