S&P Global Ratings revised its outlook on Universal Entertainment Corp. to negative from stable, citing weak performance at the company’s Philippine casino resort business, persistent pressure on EBITDA, and a debt burden expected to remain extremely high.
The rating agency affirmed Universal Entertainment’s ‘B-‘ long-term issuer credit rating and long-term senior debt rating, but said the downturn in the casino resort business is ‘highly likely to continue’ amid stiff competition in the Philippines and rising inflation linked to the Middle East war. Universal Entertainment’s Philippine casino resort business refers to Okada Manila.
S&P said EBITDA from the casino resort business is likely to remain around JPY10 billion ($62.8 million) annually, broadly in line with fiscal 2025, which ended December 31st. That is well below its previous estimate of JPY15 billion to JPY16 billion ($94.2 million to $100.5 million). The company also booked an impairment loss of about JPY220 billion ($1.38 billion) in fiscal 2025.
The agency said a recovery in Universal Entertainment’s Japanese pachinko and pachislot machine business is unlikely to offset the deterioration in the casino resort segment. It expects annual EBITDA from the Japanese game machine business to stabilize at around JPY16 billion ($100.5 million), supported by measures to stabilize machine sales and profitability.
However, S&P now expects overall EBITDA to be just below JPY20 billion ($125.6 million), compared with its earlier estimate of JPY24 billion to JPY25 billion ($150.8 million to $157 million).
S&P said the company’s debt burden is expected to remain ‘very heavy,’ with debt to EBITDA likely to stay around 10 times over the next year or so, including lease obligations and without deducting cash and deposits. The ratio stood above 11 times in fiscal 2025.
The agency also flagged a growing risk of liquidity deterioration, despite cash and deposits rising to about JPY40 billion ($251.3 million) in fiscal 2025 after increased bank borrowings by its Philippine subsidiary.
Universal Entertainment faces annual interest charges of around JPY15 billion ($94.2 million) and capital renewal investment costs of about JPY9 billion ($56.5 million) per year for the casino resort business. S&P said free operating cash flow is likely to remain negative, while cash and deposits may decline further.
S&P said it does not expect major cash flow problems in the next few quarters, as the company has less than JPY5 billion ($31.4 million) of debt due over the next 12 months within its long-term funding structure, which includes more than JPY130 billion ($816.6 million) in bonds and loans.
The agency may consider a downgrade if EBITDA and cash flow fail to recover, if free operating cash flow remains negative, or if consolidated cash and deposits fall below JPY25 billion ($157 million). It may revise the outlook back to stable if profitability recovers significantly, leverage improves, and free cash flow turns positive.
