An entity having a minority interest in the holding company controlling the Studio City casino resort in Cotai, Macau, filed for protective bankruptcy in the United States on Wednesday, a court docket seen by GGRAsia shows.
New Cotai Holdings LLC and three affiliated debtors are seeking so-called Chapter 11 bankruptcy protection from 20 creditors, via the U.S. Bankruptcy Court for the Southern District of New York.
The four entities listed collective liabilities of between US$500 million and US$1 billion, according to the court docket. A first hearing on the matter is due on May 9.
According to the Law360 news outlet, citing the actual filing to the court, New Cotai had been unable to meet its obligations and to reach an agreement with note holders on US$856 million in debt before some unsecured notes it had issued came due on Wednesday.
Brokerage Sanford C. Bernstein Ltd, which covers the stocks of the ultimate majority shareholder in Studio City – Melco Resorts and Entertainment Ltd – said in a Thursday note: “A bankruptcy of New Cotai has been expected as the New Cotai payment-in-kind notes came due and New Cotai has no funds to redeem the notes.”
The New Cotai entities cited several factors leading to their trading situation, according to Law360’s report of the court filing. They included “unanticipated declines in the Macau gaming market,” construction costs that were US$300 million greater than anticipated; that the Macau government’s gaming table allocation for Studio City had been lower than New Cotai had anticipated, and that Studio City pushed back the planned completion date of the second phase from July 2018 to July 2021. The latter was a reference to a deadline extension for development for phase two, as granted by the Macau government and announced in a Melco Resorts filing from February last year.
In January this year, Melco Resorts said it would discontinue VIP gambling – one of the main revenue drivers of the Macau casino market – at Studio City from January 2020.
New Cotai is backed by investment funds Silver Point Capital LP and Oaktree Capital Group LP.
New Cotai owned 40 percent of Studio City prior to an initial public offering (IPO) for the resort, according to Wednesday’s court filing. The IPO exercise was completed in November. Subsequent to the IPO, New Cotai’s holding was 23 percent of the Studio City holding company’s American depositary shares, with other Silver Point affiliates receiving just over 13 percent, according to Law360’s report of Wednesday’s filing.
“The underlying assets of New Cotai (consisting principally of the 23-percent interest in Studio City Holdings International) are not sufficient to cover the full redemption cost,” of the due notes, stated Sanford Bernstein analysts Vitaly Umansky, Eunice Lee and Kelsey Zhu in their Thursday note.
The brokerage added: “In our view, a buyout of the Studio City minority shareholders (in whole or in part) is not very likely in the near term.”
The institution further noted: “There is a belief held by some investors that the bankruptcy may precipitate Melco [Resorts] doing a buyout of the stake in Macau Studio City it does not own. However, this is far from certain and may not happen for some time (or ever).”
