Fitch Ratings Inc says U.S.-based casino operators Las Vegas Sands Corp, Wynn Resorts Ltd and MGM Resorts International will all be able to cope with Macau’s ongoing gaming downturn without straying significantly from their current rating thresholds.
All the three gaming firms have subsidiaries in Macau: Las Vegas Sands is the parent of Sands China Ltd; Wynn Resorts controls Wynn Macau Ltd; and MGM Resorts has a 51-percent stake in MGM China Holdings Ltd.
In a note on May 29, Fitch stated it believed “that the companies’ financial profiles can withstand the pressures related to the current downturn in Macau as well as their respective development pipelines without deviating far from the rating thresholds.”
In the note, Fitch affirmed the Issuer Default Ratings (IDRs) for Las Vegas Sands and Wynn Resorts at ‘BBB-‘ and ‘BB’, respectively. Fitch also affirmed the IDR for MGM Resorts International at ‘B+’ and MGM’s Macau subsidiaries, MGM Grand Paradise SA and MGM China Holdings Ltd, at ‘BB’.
“The two-notch differential between MGM Resorts and MGM’s Macau subsidiaries reflects the Macau subsidiaries’ significantly stronger financial profile relative to the parent company, financial covenants at the Macau subsidiaries (dividends limited if leverage is greater than 3.5x) and the smaller relative size of MGM’s Macau operations relative to [MGM Resorts’ U.S.] operations,” Fitch explained.
The rating outlook for Las Vegas Sands and Wynn Resorts’ IDRs remained stable, Fitch said. The outlook for MGM Resorts continued positive while the outlooks for the firm’s Macau subsidiaries was revised to stable from positive.
Fitch stated its rating actions already took into account the companies’ exposure to Macau. The ratings agency estimates the city’s gross gaming revenue (GGR) will decline by 29 percent in 2015 on top of a 3 percent decline in 2014.
Macau’s GGR monthly tally has fallen for 11 consecutive months judged year-on-year since June last year. The year-on-year decline is expected to have continued in May – Macau’s gaming regulator will likely disclose on Monday the city’s May monthly GGR results.
Fitch has become “more negative on the near- to medium-term prospects of Macau’s gaming market,” the ratings agency said, mentioning a potential cap to the number of mainland tourists, a complete smoking ban in Macau’s casinos as proposed by the Macau government, and delays in key transportation infrastructure projects, including the bridge to Hong Kong and Macau’s light rail system.
Fully-funded pipelines
“Las Vegas Sands’ and Wynn Resorts’ development pipelines are fully funded with minimal debt maturities coming due in the near-term and both companies took measures to shore up liquidity,” Fitch noted.
Both firms – via its Macau subsidiaries – are building large-scale casino resorts in Cotai, Macau’s answer to the Las Vegas Strip.
Fitch forecast Las Vegas Sands’ financial strength to remain within the thresholds for ‘BBB-‘. “The forecast assumes 10 percent annual growth in parent level dividends, more moderate share buyback activity and no expansion projects beyond the Parisian Macao,” the note said.
The ratings agency added it believed that there is “a better than 50/50 chance that Japan legalises casinos this year in which case Las Vegas Sands is well positioned to compete for one of the integrated resort licences.” But Wynn Resorts should also be “a competitive contender for a gaming licence in Japan if the country legalises casino resorts”.
Fitch noted that, for MGM Resorts, “Macau represents about 30 percent of consolidated revenues compared to 60 percent for Las Vegas Sands and 70 percent for Wynn Resorts. The weakness in Macau will be offset by the stability in MGM Resorts’ Las Vegas and U.S. regional markets.”
The ratings agency added: “The stable outlook on MGM Resorts’ Macau subsidiaries reflects the increased uncertainty with respect to these subsidiaries’ financial profiles amidst the current operating pressure. However, MGM China’s and MGM Grand Paradise’s IDRs maintain headroom for further upward rating pressure should conditions in Macau stabilise and MGM Cotai ramps up as expected.”
