Casino Operators Wynn, Studio City and Melco Downgraded by S&P

Wynn Resorts was downgraded to B+ from BB-. S&P expects Wynn’s leverage to remain very high in 2021 and potentially improve to 6.5-7x in 2022 due to a slow recovery in gaming revenue in Macau combined with travel restrictions. Wynn heavily relies on a recovery in Macau as the region accounted for approximately 67% of the company’s property-level EBITDA. The proposed tightening restrictions on Macau’s gaming law can further hurt the company with “less room to manage event risks and potential financial obligations”. On the positive side, Wynn’s Las Vegas properties should benefit from cost efficiencies alongside a rebound in convention business and recovery in international visitation. The negative outlook by S&P is due to the expected continued stress on revenue and cash flow.

Wynn Macau’s 5.5% 2027s were down 1 point to 91.75, yielding 7.23%. 

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Melco Resorts was downgraded to BB- from BB and Studio City to B+ from BB- on the back of a slow recovery In Macau’s gaming revenue. Due to the delta variant induced uncertainty, and strict travel restrictions, Melco’s EBITDA will probably only recover to pre-pandemic levels in 2023 as against S&P’s initial forecast of 2022. Also, Melco’s leverage will stay elevated at 6-7x in 2022 and then decline to 3.3-3.7x in 2023. Studio City is considered a strategically important subsidiary with Melco holding a 55% stake in Studio City International Holdings Ltd., the listed parent of the operating entity Studio City. While Melco is expected to renew its gaming license in Macau, S&P says that the “rebidding process may come with certain social and economic considerations that could increase leverage or reduce profitability.” Upfront payments for license renewal, capital investment in non-gaming amenities, and additional social considerations or safeguards for local employees can drag results. Besides, like other Macau operators, Melco and Studio City may also face margin compression and slower revenue growth if the gaming restrictions are strictly implemented.

Melco Resorts’ 5.625% 2027s were down 0.4 to 99, yielding 5.83%. Studio City’s bonds were flat with its 6.5% 2028s at 96.25, yielding 7.25%. 

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