Crown Resorts Hit with Negative Outlook by Moody’s as Regulatory Scrutiny Mounts

By | March 2, 2021

The outlook on Crown Resorts’ Baa3 credit rating was revised lower to “negative” by Moody’s Investors Service as the Australian gaming company faces increasing regulatory pressure in its home country.

Crown Moody's
James Packer, Crown Resorts’ largest shareholder. Moody’s put a negative outlook on the firm’s credit rating. (Image: The Australian)

The ratings agency issued the new outlook on Monday — the same day Crown Perth Chairman John Poynton left the company. Poynton is the third James Packer loyalist to depart the casino operator over the past several, following Michael Johnston and Guy Jalland.

In a report issued last month, former New South Wales Supreme Court Judge Patricia Bergin lobbed criticism at Packer’s looming influence at Crown although the billionaire hasn’t occupied a board seat since in 2018, noting director appointments to those loyal to him made the board less independent and represented conflicts of interest.

Monday’s call for the “negative” outlook ends a periodic review of Crown initiated by Moody’s last November.

The rating confirmation reflects our view that Crown has good potential to maintain its investment grade credit profile, and is willing and able to remediate shortcomings identified by the Bergin Inquiry in New South Wales, as well as any additional shortcomings that may be identified by regulatory investigations in other states,” says analyst Maadhavi Barber.

Barber adds the negative outlook is born out of the fact that the steps Crown needs to take to reach suitability to operate a Sydney integrated resort are “far-reaching and complex.”

More Suitability Pressure

Crown recently opened the $1.7 billion Crown Sydney, but regulators in New South Wales (NSW) found the company unfit for licensing in that region following a broad report on the operator’s slack anti-money laundering practices.

The hits didn’t stop there. Last month, officials in Western Australia and the Gaming and Wagering Commission (GWC) initiated a probe into the operator’s suitability to run the Crown Perth Casino. There’s potential vulnerability there because the Bergin Inquiry highlights transgressions at Crown’s properties in Melbourne and Perth.

“Crown is the subject of a number of other investigations. The State of Victoria is holding a Royal Commission into Crown’s suitability to hold its Melbourne gaming license and the Gaming and Wagering Commission of Western Australia has recommended an independent inquiry regarding Crown Perth’s operations,” said the research firm. “Nevertheless, Moody’s notes that the adverse findings of the Bergin Inquiry are in connection with Crown’s pre-existing operations in Victoria and Western Australia, and the rating agency therefore expects that findings and recommendations from the other inquiries will be largely in line with those of the Independent Liquor and Gaming Authority (ILGA) Inquiry.”

Moody’s adds financial burdens related to the inquiries are likely to be “incremental” and that the gaming company is already taking steps to address shortcomings.

Ability to Absorb Penalties

Compounding Crown’s myriad woes is that the company is also facing an investigation by the Australian Transaction Reports and Analysis Centre (AUSTRAC). The silver lining for Crown is that it has the financial capacity to deal with fines.

“If fines were to be levied, Moody’s estimates Crown can absorb a fine of around 30 percent of estimated fiscal 2022 revenues and retain financial buffers consistent with its current rating,” said Moody’s.

The research firm adds that even in a worse case scenario where Crown loses gaming licenses, it can still generate earnings via non-gaming properties and earn rental income by leasing its casino spaces to other operators.

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