Japanese gaming conglomerate Universal Entertainment Corp’s proposal to tap access to between US$140 million and US$150 million from its existing US$617 million in 8.5 percent senior notes due in December 2024, would be a “credit positive” as it would “alleviate short-term refinancing and liquidity pressure,” says a Tuesday memo from Fitch Ratings Inc.
Universal Entertainment is the parent of Tiger Resort, Leisure and Entertainment Inc, the promoter of Okada Manila (pictured), a large-scale casino resort in the Entertainment City zone in the Philippine capital.
The ratings house said the tap issuance carried the same terms and conditions as the existing 2024 senior secured notes issued in October 2020 and would be consolidated with the existing notes.
Fitch added that Universal Entertainment intended to use the proceeds to refinance US$118-million of senior secured notes due in December 2021, and for “general corporate purposes”.
The Japanese group had announced on June 11 it would issue additional notes due in 2024, “to be privately placed outside Japan,” to redeem the outstanding principal amount of US$118 million of the company’s existing notes due in 2021, and which had been privately placed outside Japan in December 2018.
Fitch observed however in its Tuesday memo, that the proposed tap of funds would “not affect” in a positive way the company’s ‘CCC+’ issuer default rating or its ‘CCC+’ senior secured debt rating and ‘RR4’ recovery rating.
“This is because the positive impact of the tap issuance is counterbalanced by ongoing uncertainty over Universal Entertainment’s liquidity and free cash flow generation,” stated Fitch.
Gross gaming revenue at Okada Manila fell 41.0 percent year-on-year in the first quarter of 2021, Universal Entertainment said in April. Such GGR was nearly PHP5.10 billion (US$1.05 billion), compared with PHP8.64 billion in the first three months of 2020.
A number of major commercial casino operators in the Philippine capital, including Okada Manila, suspended their operations from late March this year, as part of pandemic countermeasures in Metro Manila.
Metro Manila’s casinos are “currently allowed to operate at limited capacity,” said a fortnight ago the country’s gaming regulator, the Philippine Amusement and Gaming Corp, in response to an enquiry from GGRAsia. Nonetheless, Metro Manila is to remain under a general community quarantine with “some restrictions,” until June 30.
A ‘CCC’ issuer default rating from Fitch indicates a rating below so-called ‘investment quality’
In late May, Fitch downgraded Universal Entertainment’s long-term issuer default rating to ‘CCC+’ from ‘B’ – the latter indicating a “highly speculative” security – on what it said were risks regarding the company’s liquidity, given the potential for “further deterioration” in the group’s casino business.
In its Tuesday memo, Fitch said it thought Universal Entertainment faced risk of “prolonged free cash flow weakness amid the ongoing Covid-19 pandemic and potential further deterioration in both the casino and amusement equipment businesses”.
The institution added Universal Entertainment was “highly exposed to the pandemic as the operator of the Okada Manila, the largest integrated casino resort in Manila’s Entertainment City, and in its Japanese amusement equipment business, which produces and sells pachinko and pachislot machines in Japan”.
Fitch said “positive rating action” regarding Universal Entertainment,“hinges on better visibility over the end of the company’s cash burn amid the economic downturn”.
