Crown’s earnings before tax, depreciation and amortisation fell by 80 per cent this financial year to about $24 million, according to analysis of its financial disclosures by investment bank Jefferies.

Investors say the figure is closer to $75 million when one-off costs are stripped out, well below market expectations of around $700 million in annual earnings when Blackstone took Crown private in 2022.

Crown’s casino business has struggled amid a decline in wealthy international high-rollers and as it responds to inquiries that found serious misconduct and money-laundering risks at its precincts. Those inquiries forced the company’s largest shareholder, billionaire businessman James Packer, to sell to Blackstone, which delisted Crown from the ASX.

At the time, the buyout giant borrowed $5.4 billion from its property trust and Miami-headquartered Starwood Capital to finance the acquisition.

Correspondence between Blackstone and investors seen by The Australian Financial Review confirmed the firm was paying $544 million of annual interest on the loan – more than 22 times the size of Crown’s EBITDA as estimated by Jefferies analysts.

The correspondence showed that the amount Blackstone could borrow was based on projections of Crown’s earnings and the value of its assets at the time of purchase.

Blackstone has spent heavily on remediation and has steadily narrowed the company’s losses by selling all non-core assets to mitigate a lack of foot traffic through its three casinos and higher operating costs.

It sold its 20 per cent stake in Robert De Niro-backed Japanese restaurant chain Nobu, and has considered offloading its prestigious Melbourne golf club and its high-end London private members’ casino, Aspinall’s Club.

The company recorded revenues of $2.8 billion for the 12 months to June 30, down 0.2 per cent, and a $164.8 million loss – a 17.4 per cent improvement.

Blackstone also injected another $500 million into Crown last year after the company was ordered by the Federal Court to pay a $450 million fine for breaches of anti-money laundering and counterterrorism financing laws.

But some Blackstone investors and lenders are increasingly concerned that Crown will not be able to make its loan obligations given the slide in earnings.

This is rejected by Blackstone, with a company spokeswoman saying the filings with the corporate regulator reflected one-off expenses associated with overhauling the company. “Crown’s financial performance continues to improve and is meeting all its debt obligations,” she said.

Crown’s recent financial disclosures confirm its current liabilities exceed its asset position. Those filings say that the company has received a letter of financial support from Blackstone and will continue to meet its liabilities for the next 12 months “at a minimum”.

Investors who spoke to the Financial Review said the loan was levered well above market rates despite its moderate risk rating. The concerns were first flagged in The Sydney Morning Herald last year, when Crown’s earnings were healthier.

Crown is a private company, which makes it difficult to assess whether Blackstone or the investors are correct based on filings to the corporate regulator alone. Blackstone disputed the earnings figures, but refused to provide a breakdown or provide alternate earnings figures.

Shares in its only publicly listed rival, Star Entertainment, traded at $1.59 when Blackstone took out the loan. Star’s shares have since fallen by almost 90 per cent to 21¢, and it has written down its assets by $4.5 billion.

Pressure on real estate assets

Crown’s debt is held within a complicated web of entities, some within Blackstone itself, and a syndicate of global lenders.

About a quarter of the loan was provided by Blackstone’s property trust, Blackstone Mortgage Trust, which is listed on the New York Stock Exchange.

Its $US851 million injection is less than 4 per cent of its $US22 billion loan book, according to its financial disclosures. But real estate funds such as the Blackstone Mortgage Trust have been under increasing financial pressure over the last two years as the cost of debt rises and valuations fall.

In July, Blackstone Mortgage Trust was forced to cut its dividend for the first time since 2015. The trust’s chief executive, Katie Keenan, told analysts at the time the company was working through a number of “distressed” loans.

However, she said she was comfortable with what had been provided to Crown because Blackstone had invested a “tremendous” amount of money into the group, which runs precincts in Sydney, Melbourne and Perth.

“It’s really, sort of, on a positive trajectory. And obviously, it’s a very high-focus deal that we feel good about for the firm,” she said.

Starwood Capital provided $US1.4 billion to Blackstone and is currently battling liquidity issues itself.

Investors have been pulling out of its $US10 billion property trust for the past three years over concerns its real estate assets are overvalued. The exodus was so bad that Starwood moved to restrict liquidity rights by more than 80 per cent in May to avoid forced sales.

Uncertainty prevails

Crown’s financial troubles began during the COVID-19 pandemic, when it was forced to close its casino and as it faced multiple royal commission-style inquiries into its operations. They ultimately found the company had breached anti-money laundering and counter-terrorism financing laws.

While Crown is well underway with turnaround plans and has unconditional licences to operate in Sydney and Melbourne, it has been hurt by weaker economic conditions and a regulatory crackdown that has driven many of its big-spending customers away. The introduction of rules in Melbourne that require patrons to gamble with fixed cash limit cards drove revenue at the precinct down 4.4 per cent in the most recent financial year.

Jefferies said Crown was seeing signs of revenue and cost stabilisation despite its challenges. It said it expected trading conditions to improve in Melbourne and for the sale of assets to improve its debt-to-equity ratio.

Crown is now run by former Crown Perth chief executive David Tsai, who was formally appointed chief executive last week. Mr Tsai replaced Ciaran Carruthers, who stepped down abruptly in August.