Studio City Finance Ltd, the promoter of the Studio City casino resort (pictured) in Macau, has priced US$750 million in aggregate principal amount of 5.00 percent senior notes due 2029, according to a Tuesday filing.
In a separate filing on Monday, Studio City Finance announced the plan to conduct an international offering of senior notes. It also said it had initiated a conditional cash tender offer for “any and all” of its outstanding senior unsecured notes due February 2024.
Studio City Finance said it plans to use the proceeds from the new notes, together with cash on hand if applicable, to repay its US$600 million notes due 2024 and related costs; and use any remaining amount to partially fund the Studio City Phase 2 project and for general corporate purposes.
Studio City Finance is a subsidiary of Studio City International Holdings Ltd. Melco Resorts and Entertainment Ltd controls Studio City International Holdings and runs the gaming operations at the Studio City property.
Moody’s Investors Service Inc has assigned a “B1” senior unsecured rating to the proposed notes to be issued by Studio City Finance. The outlook on Studio City Finance is negative, said the ratings agency in a Monday statement.
Moody’s also said the “B1” rating reflected the institution’s expectation of “extraordinary support” from Melco Resorts “in times of need, given Studio City Finance’s strategic importance to its parent.”
It added: “This expectation leads to a one-notch uplift from Studio City Finance’s standalone credit quality.”
The statement quoted Sean Hwang, an assistant vice president and analyst at Moody’s, as saying: “Studio City Finance’s B1 ratings reflect the improved competitive standing of its Studio City property following the successful ramp-up of casino operations since its opening in 2015, counterbalanced by the risk associated with the company’s geographic concentration in the Macau SAR [Special Administrative Region].”
The ratings agency said that Studio City Finance’s operations “continue to be weak” amid the disruptions caused by the Covid-19 pandemic, with the property reporting negative adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) of US$99 million for the first nine months of 2020, compared with US$258 million positive EBITDA a year earlier.
Moody’s expects Studio City Finance’s revenue and earnings to rebound over the next 12-18 months “from the very weak level in 2020,” but with the recovery to be “gradual and partial, at least for most of 2021.”
Given such expectation, and Moody’s assumption that Studio City Finance will fund part of the property’s US$1.25 billion to US$1.3 billion Phase 2 capital spending with new debt, the institution said it expects “the company’s gross debt/EBITDA to be 10 times to 13 times in 2021 before recovering to around 6.5 times to 7.0 times in 2022.”
In an August share exercise, Melco Resorts increased its stake in Studio City International to 54.7 percent from 54.1 percent. The net proceeds from this private placement of US$499.3 million were injected as equity to Studio City Finance by way of a capital contribution in December 2020.
On Monday, Moody’s said Studio City Finance’s liquidity was “adequate for the next 12 months.”
It added: “Its cash holdings of US$156 million as of 30 September 2020 and US$499 million in new equity proceeds received in the fourth quarter of 2020 will be sufficient to cover the company’s cash burn and planned capital spending over the next 12 months.”
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