Leverage at Wynn Resorts Finance LLC, the financing arm for the Wynn Resorts Ltd group – including Macau operator Wynn Macau Ltd – could remain “elevated over the next 12 to 18 months,” says Moody’s Investors Service Inc.
The forecast was for debt relative to earnings before interest, taxation, depreciation and amortisation (EBITDA) to be in the range of 7.3 times, to 9.5 times. That compares to a much higher 23.2 times in the 12 months up to September this year, according to an assessment created by Moody’s.
Recently, Macau operators had been reporting successive quarters either of low positive EBITDA or negative EBITDA, associated with China’s ‘zero-Covid’ strategy. That policy was discontinued by the authorities earlier this month, with a number of incremental steps taken to reduce or stop testing and also to end inbound quarantines.
In Macau, the Wynn group runs the Wynn Macau property, and the Wynn Palace resort (pictured), in Cotai.
Moody’s noted in its report that Wynn’s Las Vegas and Encore Boston Harbor operations in the United States had “recovered and are producing strong operating results,” but that Macau’s recovery “has been more protracted”.
Moody’s forecast for Macau’s 2023 mass-market gross gaming revenue (GGR) is “around 50 percent plus” of the 2019 level. The ratings house anticipates the mass-market segment will recover “more substantially” in 2024.
“For Macau’s VIP segment, we expect… GGR to remain substantially below the 2019 level even in 2023-2024 because of the increasing regulatory scrutiny over the segment and the weakened junket sector,” wrote the report authors Adam McLaren and Philip Kibel.
The update said Wynn Resorts Finance’s “B1 Negative” credit profile reflected the “lingering earnings weakness from efforts to contain the coronavirus and the slow recovery in Macau visitation and revenue”.
But the rating was supported by the “quality, popularity, and favourable reputation of the company’s resort properties,” said Moody’s. It added that Wynn’s “good liquidity and relatively low cost of debt capital also support the ratings”.
The B1 corporate family rating also took into account that the Wynn group had attained a new, 10-year gaming concession in Macau “on terms that do not materially impair Wynn’s credit quality”.
The Wynn group has pledged to the Macau government it will spend MOP17.7 billion (US$2.2 billion) over the course of the decade-long concession, with MOP16.5 billion – or about 93.2 percent – set for expanding international markets and non-gaming investments.
Moody’s noted that a ratings upgrade was “unlikely” given a “weak operating environment” in Macau.
An upgrade “would require casinos to remain open and ramp up closer to normal utilisation,” leading to a “restoration of sufficient earnings to generate meaningful positive free cash flow before discretionary development spending”.
Wynn Resorts Finance would also need to maintain debt/EBITDA on a Moody’s adjusted basis, below 6.0 times, added the report.
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"We [estimate] that these illegal [currency exchange] transactions account for somewhere between 50 percent to 60 percent [of Macau's annual gross gaming revenue]”
Managing partner at IGamiX Management and Consulting