Fitch Ratings Inc says Australian casino operator Crown Resorts Ltd’s “low net debt position” as of December 31, 2019 and “highly variable cost structure” provides the gaming operator with “headroom to absorb the effect of the government shutdown of casinos” in that country.
That is despite the “significant reduction” in Crown Resorts’ revenue, and high capital expenditure over the remainder of 2020 as the company completes its casino property in Sydney, New South Wales, said the credit research firm in a Wednesday note.
Fitch in October affirmed Crown Resorts’ “BBB” credit rating, with a stable outlook. Macau casino operator Melco Resorts and Entertainment Ltd owns a 10-percent stake in Crown Resorts.
Casinos in Australia were ordered to close temporarily on March 22 as part of efforts to slow the spread of the Covid-19 disease in that nation. The move followed the decision by Australian authorities to put in place “more widespread restrictions” regarding social gatherings. These include the closure of casinos, bars and other entertainment venues.
Crown Resorts runs a gaming complex in Melbourne, Victoria; one in Perth (pictured), Western Australia; and is developing a third at Barangaroo in Sydney. The company has also closed a VIP venue – called Aspinalls – it manages in London, the United Kingdom.
In Wednesday’s memo, Fitch said it expected Crown Resorts’ ability to generate cash inflows from its operations to be “severely restricted” following the shutdown of the group’s casinos.
Crown Resorts said in a filing last week that it was still assessing the financial implications of the shutdown on its business. The company has not yet announced the measures it intends to take to manage its business while the restrictions remain in effect.
According to Fitch, Crown Resorts has no significant bond maturities before the financial year ending June 2025, as well as “manageable covenant risk, and available liquidity” to meet operating expenses over the expected duration of the casinos closure.
The ratings agency said it also believed the casino operator would be able to “reduce its cash outflows significantly”. Some of the measures may include “standing down staff” and a “reduction in other overheads,” as well as incurring lower gaming taxes which directly reflect the decline in gaming volumes.
“Furthermore, we believe that Crown could implement extraordinary measures, such as the suspension of its dividend, even though it has a fixed-dividend policy, to preserve cash and maintain the strength of its balance sheet,” added Fitch.
Australia market rival The Star Entertainment Group said earlier this week it was deferring the payment date of its first-half fiscal-year 2020 dividend from April 1 to July 2. The company also said in a written announcement last week that it was “temporarily standing down” over 90 percent of the group’s nearly 9,000 employees, including senior management. The company would still provide two weeks of paid leave for its staff, it stated.
In Wednesday’s note, Fitch said it expected Crown Resorts to be able to deleverage from fiscal-year 2021, “should restrictions be lifted from July 2020 and demand recovers progressivel”.
“Under this case, we have assumed that Crown does not declare a final dividend for fiscal-year 2020 and interim dividend in fiscal-year 2021 to preserve its liquidity without the need to raise additional debt, but that final dividends are resumed in fiscal-year 2021,” stated the ratings agency.
Crown Resorts is facing an inquiry about its suitability to hold a New South Wales gaming licence, but the inquiry has been temporarily halted due to the Covid-19 pandemic.
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