Australian casino operator Crown Resorts Ltd has seen its long-term corporate credit and issuer ratings affirmed as ‘BBB’ with a ‘stable’ outlook by Standard & Poor’s Financial Services LLC.
The ratings institution said it had made Monday’s announcement after noting that Crown Resorts planned to use AUD800-million (US$614.7-million) – of the estimated AUD1.9-billion proceeds from sell-downs in Asian casino developer Melco Crown Entertainment Ltd – to reduce Crown Resorts’ debt load. Crown Resorts has domestic casino operations in Melbourne, Victoria, and Perth, Western Australia (pictured) and is planning another venue at Barangaroo in Sydney, New South Wales.
Standard & Poor’s said downward ratings pressure could emerge if debt-funded investment worsens Crown Resorts’ “key credit metrics outside our expectations for the rating, including sustaining its debt to earnings before interest, taxation, depreciation and amortisation above 2.5 times”.
The ratings agency said in its latest report, by analysts Graeme Ferguson and Karan Rathod, that other principal liquidity sources for Crown Resorts included: funds from operations amounting to between AUD700 million and AUD750 million; and likely undrawn bank facilities amounting to AUD1-billion after company debt reduction and capital management initiatives.
The institution said principal uses of liquidity included: capital expenditure of AUD450 million to AUD500 million; ordinary dividends of about AUD440 million; and special dividends and share buy-backs amounting to AUD1.1 billion.
On Monday Standard & Poor’s also reclassified the equity credit of Crown Resorts’ hybrid Notes I as “minimal” as a consequence of the firm’s announcement that it proposed to buy back all such outstanding notes, to a full principal amount of AUD530 million.
The institution added it continued to assign ‘intermediate’ equity credit to the company’s hybrid Notes II, of which AUD630-million-worth are outstanding.
Factors additionally in Standard & Poor’s credit and issuer rating affirmation had been Crown Resorts’ decision not to proceed with a proposed initial public offering for certain property assets in a Crown Resorts-controlled property trust, and the fact the casino firm had “moderated its dividend payout level”.
Standard & Poor’s said the ‘stable’ outlook reflected the view that “Crown’s strong cash flows from its established casino assets, together with a prudent approach to capital management, should mitigate the the execution and funding risks associated with the group’s large development programme”.
On February 23, Crown Resorts had announced turnover from its VIP gambling operations in Australia had plunged 45.3 percent year-on-year in the six months ending December 31, to AUD19.6 billion.
The results were “broadly in line with our expectations, including a sharp decline in VIP turnover following the detention of Crown employees in China in October 2016,” said Standard & Poor’s.
“The Melco Crown Entertainment sell-down is part of a broader restructure that included Crown’s decision not to divest its international assets and to shelve the Alon project in Las Vegas,” said Standard & Poor’s referring to a proposed venue on the Las Vegas Strip in the Nevada gambling hub.
“In our opinion, these initiatives [decisions] have reduced certain execution and market risks, as well as alleviated the funding pressure associated with the group’s development pipeline over the next few years,” added the ratings house.
Media in Western Australia reported on Tuesday that Crown Perth had cut more than 200 jobs from the workforce there, with management citing difficult trading conditions for the group.
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”Continued negative coverage of the Abe administration, coupled with political losses for the Liberal Democratic Party ... may reduce support for the gaming agenda, which already has only limited public support”
Analyst at brokerage Sanford C. Bernstein