Rated Macau gaming operators are likely to push back refinancing plans “as much as possible” when it comes to addressing debt maturity dates falling in 2025, and such deferral would be in anticipation of more favourable interest rates and better cash flow prior to the maturity dates of current obligations. So suggested S&P Global Ratings Inc in a Thursday briefing, giving an update on the financing outlook of the Macau gaming sector.
Melissa Long, director of corporate ratings at S&P Global, said during the discussion: “We think operators might wait a bit before attempting to address these 2025 maturities, given some market expectations that [US dollar] interest rates might come down a bit from current high levels later this year, and given these operators expect to see improvement in cash flow generation [from Macau market] over the next few quarters.”
She added: “Nevertheless, we think they’ll be prudent and proactive in addressing larger maturity needs in 2025 and beyond, to preserve their liquidity position. We also think investors at issuers [Macau casino companies] could partly pay down some of these maturities to try and reduce leverage they incurred during the [Covid-19] pandemic.”
Gaming operators MGM China Holdings Ltd, Wynn Macau Ltd, Sands China Ltd, Melco Resorts (Macau) Ltd and Studio City Co Ltd are amongst S&P Global’s rated issuers. All of these operators have a “spread out” debt maturity profile, with most of them starting to come due from 2025 and onwards, according to the ratings agency.
Wynn Macau Ltd, MGM China bonds pre-2025
While some of these gaming operators’ 2025 debt maturities will become current debt in the next two quarters, S&P Global said it believes those issuers have “sufficient cash resources” to sustain their liquidity position.
“Most companies spoke about decreasing the size of that maturity ahead of refinancing. So we would expect [them] and potentially some of the others to use some of the free cash flow that they’re going to generate over the coming quarters to begin to reduce debt levels,” Ms Long said.
She also remarked: “Several operators have sizable bank maturities in 2025, or maturing [credit] revolvers. We expect the banks [with exposure to] these facilities will probably remain supportive given the market’s strong recovery, and operators expected cash flow and leverage improvement.”
Wynn Macau Ltd and MGM China are rated issuers with bonds coming due in 2024. Both should have “sufficient cash and revolver availability” to repay those maturities “without needing to tap the debt capital markets” this year, said Ms Long.
She noted: “Wynn [Macau] raised US$600 million of convertible notes last year, which we think was an attempt to pre-fund the 2024 bond maturity.”
Melco Resorts (Macau) and Studio City Co – both operating subsidiaries of United States-listed Melco Resorts & Entertainment Ltd – are currently on S&P Global’s ‘positive outlook’ list. Opinion on the two Melco entities could be improved further, if Melco Resorts & Entertainment can keep its adjusted-debt-to-earnings before interest, taxation, depreciation and amortisation (EBITDA) leverage ratio at “less than 3.5 times”, the rating agency said.
That adjusted-debt-to-EBITDA ratio is “more likely” to happen for Melco Resorts & Entertainment “in 2025”, suggested S&P Global’s associate director of corporate ratings, Aras Poon, who also took part in the Thursday briefing.
On the potential rating action on the Melco entities, Mr Poon noted: “I think we can potentially make determinations in mid-[2024] to… maybe the second half of 2024.”
Melco past investment ‘peak’
That is the time when the ratings agency thinks “stronger visibilities” will apply to Melco Resorts & Entertainment’s EBITDA performance, and its potential refinancing plan to meet 2025 debt maturities, Mr Poon explained.
The Melco group should have “passed its peak investment cycle” with the completion of Phase 2 at its majority-owned Studio City in Macau’s Cotai district; and the new-to-market City of Dreams Mediterranean in the Republic of Cyprus, projects respectively opened in 2023, said S&P Global. The agency expects the casino group to prioritise the ramping up of operations at both of these properties and reducing the firm’s leverage, over any “bidding [on] major new projects”.
Mr Poon also remarked in the briefing: “Given the strong recovery in mass [gaming in Macau], we think Melco will benefit from that and translate into EBITDA improvement and cash flow improvement… we believe the company does want to lower… leverage and [to] reduce some of the incremental debt [it] incurred during the pandemic period.”
The rating agency expect the issuers MGM China, Sands China, Wynn Macau and Melco Resorts & Entertainment to see their EBITDA improvement “accelerate” over the next several quarters, supported by increased volume of visitors to Macau and a greater number of hotel rooms in the market.
The Macau market, overall, could potentially gain “share from other Asian gaming jurisdictions” in terms of mainland Chinese players, given the Chinese yuan depreciation and the mainland authorities’ efforts to promote domestic tourism, S&P Global also noted in the briefing.
