Moody’s Investors Service Inc says it projects Melco Resorts and Entertainment Ltd’s ratio of adjusted debt to earnings before interest, taxation, depreciation and amortisation (EBITDA), to rise to about “10 times or higher” in 2021, due to the company’s “sluggish cash flow and planned capital spending.”
Such debt/EBITDA ratio would then in likelihood improve “to around 5 times to 6 times in 2022, and around 4 times in 2023,” said the ratings agency in a Wednesday memo.
Moody’s said it expected gaming revenue in Macau to improve in 2021, from the “very weak level” in 2020. “However, the recovery will be gradual and partial, at least for most of 2021, given the remaining restrictions and social-distancing measures and a lingering fear of infection,” it added.
As a result, the institution said Melco Resorts’ earnings in 2021 “will remain sluggish, before recovering close to pre-pandemic levels in 2022-23.”
Moody’s said additionally it anticipated that Melco Resorts’ consolidated debt level would increase to about US$7 billion over the next 12 to 18 months. That was because the casino firm’s “sluggish cash flow and planned capital spending,” including the Phase 2 construction of the Studio City property in Macau and the development of the group’s Cyprus casino resort, would “likely lead to negative free cash flow during this period.”
“While Melco Resorts’ projected leverage for 2023 would be appropriate for its Ba2 ratings, there is significant risk to this projection, given the lingering uncertainties over the pace and extent of the company’s earnings recovery,” added the ratings agency.
“A prolonged weakness in operations can lead to larger negative free cash flow and higher debt leverage than Moody’s currently anticipates. The negative rating outlook reflects this risk,” it added.
In the report, Moody’s said it had assigned a “Ba2” rating to the proposed add-on to Melco Resorts Finance Ltd’s senior unsecured notes due 2029. The Melco Resorts unit said in a Wednesday filing that the offering consisted of US$250 million in 5.375-percent senior notes.
The memo quoted Sean Hwang, a Moody’s assistant vice president and analyst, as saying that the Ba2 ratings reflected “the group’s established operations and high-quality assets” under the parent, “which counterbalance its geographic concentration” in the Macau market.
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“We see that basically the ‘golden’ periods [for Macau's casino industry] are all concentrated in the second half of this year”
Lei Wai Nong
Macau’s Secretary for Economy and Finance