Philippine casino investor and Japanese pachinko business Universal Entertainment Corp has been affirmed by Fitch Ratings Inc, with a ‘B’ and ‘outlook negative’ assessment on its long-term issuer default rating.
Universal Entertainment runs – via one of its units – the Okada Manila casino resort (pictured) in the Philippine capital. The resort had been closed since mid-March, along with other casino venues, due to Covid-19 in the country. Okada Manila had recently declared it was reopening, in line with permission granted by the country’s casino regulator, though at an initial 30 percent gaming capacity.
Fitch said in its Wednesday note that the ‘B’ ratings reflected the Japanese firm’s “strong market position” in the Manila casino business, and in its Japanese “amusement equipment business,’ where Universal Entertainment “commands a leading market share”.
But the credit assessment institution said Universal Entertainment’s issuer default rating was constrained by the parent group’s “modest size” and “single-location focus” in terms of casino business, and “execution risk in the casino operations due to the lack of a track record in the junket and high-roller business lines”.
Fitch further noted, referring to the pachinko business: “The company also continues to face a structural decline in the amusement equipment segment.”
The negative outlook “was driven by ongoing uncertainty” over the coronavirus pandemic and its impact on both Universal Entertainment’s casino segment and the amusement equipment business, said the ratings agency.
Fitch stated: “Despite the re-opening of the integrated resort, we believe there are significant risks to the segment’s recovery in view of travel restrictions, potential new outbreaks and further lockdowns that could weigh on earnings and cash flows.”
Referring to Okada Manila, Fitch stated: “The integrated resort business expanded rapidly prior to the pandemic and accounted for more than half of Universal Entertainment’s consolidated revenue and EBITDA [earnings before interest, taxation, depreciation and amortisation] in 2019.”
Fitch analysts added the integrated resort had been “hit hard” according to Universal Entertainment’s second-quarter and first-half results, “by the lockdown of central Manila,” with second-quarter revenue “dropping 97 percent year-on-year, and EBITDA swinging to a loss from a solid profit a year earlier”.
Fitch also affirmed in its Wednesday note, Universal Entertainment’s outstanding United States-dollar senior secured notes rating at ‘B’ ,with a recovery rating of ‘RR4′. Fitch assigned the Japanese conglomerate’s proposed U.S.-dollar senior secured notes a ‘B’ rating, with a recovery rating of ‘RR4′. The latter means investors have an “average” opportunity of recovery, based on Fitch’s grading system for such financial instruments.
The note stated that the rating on Universal Entertainment’s proposed senior secured notes assumed that Tiger Resort, Leisure and Entertainment Inc, the operating company for Okada Manila, “will be in the guarantor group and that Universal Entertainment will retain a controlling stake” in the Tiger Resort entity, “upon the release of the guarantee in the event of an initial public offering,” for the Okada Manila operating entity.
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