Macau gaming operator Melco Resorts & Entertainment to see consolidated debt rise from $ 6.1 billion to $ 7 billion over the next 12-18 months, with debt-to-EBITDA ratio multiplied by 10, according to Moody’s Investor Services.
Moody’s on Thursday gave a Ba2 rating to a new additional US $ 250 million senior unsecured bonds due 2029, announced earlier this week by Melco’s subsidiary Melco Resorts Finance Limited, the entity that manages City of Dreams Macau, Altira Macau and Mocha Clubs. The proceeds will be used to repay existing debt.
While Moody’s said the Ba2 rating reflects the high quality of Melco’s assets in Macau, it also warned that the company’s debt level would continue to rise in 2021, “as the slow cash flow of the ‘business and planned capital spending, including Studio construction phase two Ownership of the city and the development of its integrated complex in Cyprus will likely result in negative free cash flow during this period. “
He added that, “Given the above expectations, Moody’s predicts that Melco’s Debt / Adjusted EBITDA will be around 10 times or more in 2021 before improving to around 5 times to 6 times in 2022 and at approximately 4 times in 2023. “
There is also a “significant risk” to these leverage projections “given the lingering uncertainties about the pace and extent of the company’s earnings recovery. Prolonged weakness in operations may result in greater negative free cash flow and higher debt leverage than Moody’s currently anticipates. The negative rating outlook reflects this risk, ”he said.
With the impact of COVID-19 on operations, Melco reported negative EBITDA of US $ 221 million for the first nine months of 2020, compared to US $ 1.2 billion of positive EBITDA in the same period in 2019. However, the company has since revealed a 94% increase in GGR in 2019. October and November in properties managed by Melco Resorts Finance and a 146% increase in Studio City.