Fitch Ratings Inc has placed Japan-based Universal Entertainment Corp’s ‘B-‘ long-term issuer default rating (IDR) and the ‘B-‘ rating on its outstanding U.S.-dollar senior secured notes on ‘rating watch negative’.
The conglomerate is the parent of Tiger Resort, Leisure and Entertainment Inc, the promoter of the Okada Manila casino resort (pictured) in the Philippine capital Manila.
Fitch’s step regarding the parent “reflects the fact that the maturity of the US$760-million notes due December 2024, which constitutes the bulk of the company’s debt, is drawing closer,” said the ratings institution in a Wednesday memo.
Fitch added: “While the company [Universal Entertainment] is in advanced stages of executing a refinancing plan, legally-binding commitments to refinance are not in place.”
The institution further observed: “Fitch will resolve the ‘rating watch negative’ if the company successfully refinances its debt. Any delays in refinancing execution will likely lead to further negative actions.”
Fitch additionally said: “While our analysis suggests that all the debt instruments would be fully recovered, we note that a significant amount of Universal Entertainment’s enterprise value is tied to assets located in the Philippines.”
The Okada Manila business posted net sales of nearly JPY20.38 billion (US$132.2 million) in the first quarter, equal to 59.2 percent of Universal Entertainment’s first-quarter consolidated net sales of nearly JPY34.43 billion.
As a consequence of Universal Entertainment’s exposure to the Philippines market, said Fitch, “the country cap for the Philippines will be applied, which limits the recovery rating to ‘RR4’ as per Fitch’s country-specific treatment of recovery ratings criteria.
Fitch said it expected the business growth at Okada Manila “to soften” in the current year.
First-quarter casino gross gaming revenue (GGR) declined 24.1 percent year-on-year at Okada Manila, according to an April announcement from Tiger Resort.
Fitch said of parent Universal Entertainment: “Following a strong 2023 performance, we forecast… revenue growth to flatten in 2024 before rising from 2025, albeit at a moderate rate.”
But Fitch added: “We have revised down our forecast for revenue from the company’s integrated resort (IR) in the Philippines, although we believe prospects for the IR remain positive, underpinned by the Philippines’ healthy economic growth and continued recovery” in inbound tourist volume.
Universal Entertainment saw first-quarter net sales down 3.0 percent year-on-year at just under JPY34.43 billion.
The parent’s operating profit slipped 15.5 percent from the prior-year quarter, at just over JPY4.02 billion. Net income attributable to owners of the parent rose 17.1 percent year-on-year however, to JPY3.45 billion.
Universal Entertainment had said in a Tuesday announcement on its first-quarter results that there had been improved sales of its new “smart pachislot” machines, wich were “meeting the expectations of pachinko hall operators” in Japan.
But it added: “In the integrated resort business, market conditions were affected by the slowdown in the junket business.”
Group-wide, “there was a foreign exchange gain in the first quarter due in part to the [Japanese] yen’s depreciation and strength of the U.S. dollar.
“However, interest income from U.S. dollar-denominated bonds increased because of the dollar’s strength,” added Universal.
