Moody’s Investors Service Inc says the credit quality of Macau casino operator Melco Resorts and Entertainment Ltd “is currently constrained by the severe coronavirus-induced drop in revenue and earnings in 2020.” Such environment would “lead to significant negative free cash flow” for the casino group, said the ratings agency in a Tuesday report.
The statement was part of a periodic review of the ‘Ba2’ corporate family rating of Melco Resorts Finance Ltd, a 100-percent owned subsidiary of Melco Resorts and the single largest source of the parent company’s profit and cash flow.
In its report, Moody’s said Melco Resorts’ “geographic concentration” in the Macau market “is also a constraining factor” in the group’s credit quality.
Melco Resorts has most of its business in Macau, where its flagship resort is City of Dreams (pictured). The company also operates casinos in the Philippines and the Republic of Cyprus.
The ratings agency said Melco Resorts’ weaknesses were “mitigated” by the group’s “established operations and high-quality assets as well as its good liquidity buffer against the current challenging environment.”
Melco Resorts said last week that its daily operating costs during the second quarter were “approximately US$1.5 million,” down from the previous quarter.
The casino group also announced last week the pricing on proposed US$500-million senior notes, offered by Melco Resorts Finance.
In a separate report on Tuesday, Moody’s also completed a periodic review of the ratings of Studio City Finance Ltd, a subsidiary of Studio City International Holdings Ltd, the controlling entity for the Studio City casino resort in Macau.
Melco Resorts controls Studio City International Holdings and runs the gaming operations at the Studio City property.
The ratings agency said that Studio City Finance’s ‘B1’ corporate family rating was constrained by a “weakening in revenue and earnings” in 2020.
“The weakened earnings and capital spending for the phase two expansion project [of Studio City] will lead to negative free cash flow until sufficient recovery takes hold,” said Moody’s. “This risk is mitigated by Studio City Finance’s good liquidity to withstand the cash burn for at least the next 12 months,” it added.
A subsidiary of Studio City International Holdings announced earlier this month plans to raise an aggregate of US$1 billion via a dual-tranche offering of senior notes. The group also announced a series of private offers for its Class A ordinary shares, expecting to “receive gross proceeds of no less than US$450 million.”
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"The most worrying [thing] is whether [mainland] China will again tighten the issuance of travel visas [for visits to Macau]"
Luiz Lam Kai Kuong
Macau junket investor