Macau casino operator MGM China Holdings Ltd has asked lenders to ease financial covenants related to a HKD9.75-billion (US$1.25 billion) credit facility, amid the negative impact that a novel coronavirus has had on the city’s gaming industry, a company spokesperson confirmed to GGRAsia.
The financial covenants are tied to ratios linked to MGM China’s earnings before interest, taxation, depreciation and amortisation (EBITDA), the person confirmed. The information was first reported by Bloomberg on Friday.
Despite seeking to relax conditions attached to the loan financing, MGM China “remains optimistic regarding Macau’s gaming industry in the long run,” the firm’s spokesperson told us.
Macau casinos started to reopen on Thursday (February 20), following a 15-day shutdown ordered by the city’s government as part of the efforts to contain the spread locally of the coronavirus. Casino executives and investment analysts have said that despite the resumption of gaming operations, it might take some time for Macau’s casino industry to actually see a rebound in business volumes.
Reuters news agency reported on Friday that the uncertain fallout from the coronavirus outbreak – that originated in China’s Hubei province – has paralysed syndications across Asia, as lenders struggle to assess the damage to businesses and borrowers. Companies that rely heavily on Chinese tourists were said to be also at risk due to travel restrictions, namely in the Asia-Pacific region.
Macau casino executives have said that existing travel restrictions are making it very hard for clients from outside Macau – particularly from mainland China, the main feeder market of the city’s casino industry – to reach the city.
The mainland authorities have stopped – until further notice – issuing fresh permits for Chinese independent travellers to visit Macau under the country’s Individual Visit Scheme. Tour groups from the mainland to Macau are also suspended. The authorities have said the measures are part of the efforts to cut travel across China and so reduce the risk of further spread of the coronavirus.
In a August 12 filing, MGM China told the Hong Kong bourse that it had an agreement with certain lenders whereby the lenders agreed to make available to the company a revolving credit facility in an aggregate amount of HKD9.75 billion, with a final maturity date on May 15, 2024.
The revolving credit facility would bear interest at a fluctuating rate per annum based on Hong Kong InterBank Offer Rate (HIBOR) plus a margin – in the range of 1.625 percent to 2.75 percent – which would be determined by the company’s leverage ratio, according to the August filing. The proceeds of this credit facility were to be used to refinance MGM China’s then existing senior secured credit facilities, and for ongoing working capital needs as well as other general corporate purposes, the filing stated.
As of June 30, 2019, MGM China’s borrowings net of debt finance costs amounted to HKD16.92 billion; and the company’s net debt stood at nearly HKD13.51 billion, according to its interim report filed in September. At the end of first-half 2019, the casino operator had a gearing ratio at 57.8 percent. The amount of cash and cash equivalents it held in the period stood at approximately HKD3.15 billion.
In comments included in a February 13 filing to the Hong Kong bourse, MGM China said the coronavirus crisis “could have a material effect on MGM China’s results of operations for the first quarter of 2020 and potentially thereafter.” The management of MGM Resorts International – the parent company of MGM China – said on a conference call with investment analysts that the casino closure step in Macau was costing the firm US$1.5 million a day.
The company said additionally: “The extent to which the coronavirus impacts the company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and any additional actions taken to contain it from spreading.”
Management of rival casino operator Wynn Resorts Ltd said on February 6 that the group’s two bank facilities had maintenance covenants, but that the group had enough buffers in financial terms to sustain the closure of its two casinos in Macau.
“The U.S. facility has more than ample covenant headroom to sustain a very prolonged period of suppressed business volumes in Macau and the Macau facility does have a maintenance covenant that is sensitive to Macau EBITDA,” said the Wynn Resorts president and chief financial officer Craig Billings.
He added: “And - as I suspect several concessionaires do - we already have a game plan in place to manage that [covenants of the Macau bank facility] to the extent that the shutdown is extended – but it would have to be quite extended.”
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"The Macau recovery continues to be disrupted by false starts, while the lack of [Chinese] public holidays for rest of the year should cap the pace of the rebound”
Andrew Lee and David Katz
Analysts at brokerage Jefferies LLC