Macau gaming operator Melco Resorts & Entertainment will see its consolidated debt increase from US$6.1 billion to US$7 billion over the next 12 to 18 months, with its debt/EBITDA ratios spiraling to as much as 10x, according to Moody’s Investor Services.
Moody’s on Thursday issued a Ba2 rating to a new US$250 million add-on to senior unsecured notes due 2029 announced earlier this week by Melco’s subsidiary Melco Resorts Finance Limited – the entity that runs City of Dreams Macau, Altira Macau and Mocha Clubs. The proceeds will be used to pay down existing debt.
While Moody’s said the Ba2 rating reflects the high quality of Melco’s Macau assets, it also warned that the company’s debt level would continue to grow in 2021, “as the company’s sluggish cash flow and planned capital spending, including the phase two construction of the Studio City property and the development of its Cyprus integrated resort, will likely lead to negative free cash flow during this period.”
It added that, “Given the above expectations, Moody’s projects Melco’s adjusted debt/EBITDA will be elevated at around 10x or higher in 2021 before improving to around 5x to 6x in 2022 and around 4x in 2023.”
There is also “significant risk” to those leverage projections “given the lingering uncertainties over the pace and extent of the company’s earnings recovery. A prolonged weakness in operations can lead to larger negative free cash flow and higher debt leverage than Moody’s currently anticipates. The negative rating outlook reflects this risk,” it said.
With COVID-19 impacting operations, Melco reported negative EBITDA of US$221 million for the first nine months of 2020 compared with US$1.2 billion positive EBITDA over the same period in 2019. However, the company has since revealed a 94% increase in GGR in October and November at properties run by Melco Resorts Finance and a 146% increase at Studio City.