Macau casino operators can deal with debt maturities
During the worst days of the coronavirus pandemic, Macau's casino concessionaires took on huge debts to stay afloat. Some of these obligations will expire, but these expiration dates are unlikely to burden the issuer.
The ability to service corporate bonds, many of which are issued with junk ratings and therefore higher interest rates, is critical to both Macau operators and bondholders. That's because rated issuers will have between 5% and 27% of their bonds maturing this year and 2025, according to S&P Global Ratings.
Given rising U.S. interest rates and improving free cash flow generation in Macau, the issuer may delay its 2025 maturity refinancing plans as much as possible to reduce debt costs. "Issuers can partially repay these maturing debts to achieve the common goal of reducing leverage," the research firm said.
S&P added that MGM China and Wynn Macau have cash on hand and have access to the necessary revolving credit facilities to meet maturities through 2024 without the need for refinancing. It's common for companies to refinance debt to push the maturity date forward. However, it is preferable to meet these obligations without seeking an extension.
Creditors may support operators
In 2021 and 2022, when gaming venues in the Special Administrative Region (SAR) are barely open, it is good business for banks to provide funds to casino operators in Macau.
After all, investment banks charge fees when they sell corporate bonds, and by providing capital to operators during tough times, financial institutions effectively bet on Macau's recovery - a bet that has paid off today.
"While some of these bonds maturing in 2025 will become short-term obligations over the next two quarters, we expect issuers to have sufficient cash on hand to maintain their liquidity positions," S&P noted. "Given the strong market recovery, we also expect Issuers are expected to receive increasing support from banks. These banks have provided support to issuers even during difficult pandemic times."
Macau Casino Operators’ Debt Shows Encouraging Signs
Together, the six franchises have taken on more than $20 billion in new debt as a result of the COVID-19 crisis. But the recovery in free cash flow to equity is mitigating the risks associated with rising debt levels outstanding. Additionally, market participants are bullish on Macau gaming bonds, suggesting the asset class is one of the most favored when it comes to China-related high-yield bonds.
In addition, some operators in Macau, including Sands China and Wynn Macau, have good credit ratings and prospects. The two companies jointly operate seven integrated resorts in the gaming enclave.
"Macau companies' continued recovery [and] cash flow should help improve leverage. It would also provide both companies with a financial cushion to absorb a potentially large, multi-year casino project if they were to secure one of the New York licenses ." S&P concluded.
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Source: www.casino.org
