Both Moody’s Ratings and S&P Global Ratings issued evaluations on the recently announced senior notes linked to Melco Resorts & Entertainment Limited, stating the move should help the group repay its debt and improve financial leverage.
Recently Melco Resorts Finance (MRF), a Melco Resorts subsidiary, announced it proposed an international offering of senior notes, with the net proceeds from which to be used to make a partial repayment of the principal amount outstanding under the revolving credit facility, together with accrued interest and associated costs.
MRF is a wholly-owned subsidiary of Melco Resorts & Entertainment Limited, listed on the NASDAQ exchange and majority-owned by Melco International Development Ltd.
Through Melco Resorts (Macau) Limited, Melco Resorts Finance operates two wholly-owned casinos in Macau, namely, City of Dreams and Altira Macau. Â
In a recent dispatch, Moody’s assigned a Ba3 rating and a stable outlook to the proposed senior unsecured USD notes to be issued by MRF, stating that it reflects Melco Resorts & Entertainment Limited’s (MRE) established operations and high-quality assets, as well as the expectation of significant financial leverage improvement during 2024-25 due to the strong recovery of the gaming market in Macau.
Despite the geographic concentration risk in Macau, where gross gaming revenue is subject to policy changes, Moody’s noted that MRF’s ratings remain supported by the consolidated credit quality of Melco group under MRE.
Macau’s GGR has shown a robust recovery since China’s reopening in early January 2023, with both the mass and VIP segments recovering substantially compared to 2019 levels, therefore Moody’s anticipated MRE’s adjusted EBITDA to increase to around $1.3 billion in 2024, supporting MRF’s Ba3 ratings.
‘With MRE’s solid liquidity position and proposed bond issuance, the company is expected to have sufficient liquidity for capital spending and debt repayments over the next 12-18 months,’ the agency pointed out.
‘The stable rating outlook reflects Moody’s expectation of significant financial leverage improvement driven by earnings recovery and debt reduction. However, ratings could be upgraded if MRE further improves earnings, reduces debt, and maintains good liquidity, resulting in a decline in adjusted debt/EBITDA on a sustained basis’.
Still, Moody warned that downgrades could occur if adjusted debt/EBITDA returns to higher levels or if liquidity weakens due to unexpected factors such as a weaker-than-expected earnings recovery or aggressive financial policies.
Meanwhile, S&P Global Ratings assigned a ‘BB-‘ long-term issue rating to the proposed US dollar-denominated senior unsecured notes.
The brokerage considered that since the notes are intended to repay existing debt, they were labeled as ‘leverage-neutral’.
‘Together with extending credit facilities and a tender offer at Studio City Finance Ltd., this move may reduce the group’s refinancing risks for 2025 maturities. The rating reflects the long-term issuer credit rating on Melco Resorts (Macau) Ltd., a key operating subsidiary of Melco group,’ S&P added.
‘The risk of subordination in MRF’s capital structure is considered insignificant, given its $4.1 billion in senior notes and $1.05 billion of outstanding bank loans as of end-2023.’
