Posted on: February 4, 2024, 08:02h.
Last updated on: February 4, 2024, 08:02h.
During the worst days of the coronavirus pandemic, Macau casino concessionaires took on massive amounts of debt simply to stay afloat. Tabs for some of those obligations are coming due, but those maturities are unlikely to burden issuers.
Ability to service corporate bonds, many of which were issued with junk grades and thus high interest rates, is relevant to Macau operators and bondholders alike because, as noted by S&P Global Ratings, rated issuers have 5% to 27% of their bonds coming due this year and in 2025.
Issuers will likely push back refinancing plans as much as possible for 2025 maturities to lower the cost of debt, given the elevated U.S. dollar interest rates and improving free cash flow generation in Macao. Issuers could partially pay down these maturities with a common target to lower leverage,” according to the research firm.
S&P added that MGM China and Wynn Macau have the cash on hand and access to revolving credit needed to take care of 2024 maturities without refinancing. It’s common for companies to refinance debt to push out maturities, but it’s more desirable to tend to those obligations without pursuing maturity extensions.
Creditors Likely to Support Macau Casino Operators
It was good business for banks to loan capital to Macau casino operators in 2021 and 2022 when gaming venues in the special administrative region (SAR) were barely open for business.
After all, investment banks command fees on corporate bond sales and by providing capital to operators during a rough patch, the financial institutions made de facto wagers on Macau’s recovery — bets that are paying off today.
“While some of these 2025 maturities will become current debt in the next two quarters, we believe issuers have sufficient cash resources to sustain their liquidity positions,” noted S&P. “We also expect issuers to get incremental support from their banks given the market’s strong recovery. These banks supported the issuers even through the difficult pandemic period.”
Encouraging Signs for Macau Casino Operators’ Debt
In aggregate, the six concessionaires took on more than $20 billion in new debt due to COVID-19 crisis, but resurgent free cash flow to equity levels are damping risks associated with elevated levels of outstanding obligations. Plus, market participants are bullish on Macau gaming bonds, signaling that the asset class is among the most preferred when it comes to China-linked high-yield debt.
Additionally, credit ratings and outlooks for some Macau operators, including Sands China and Wynn Macau, are decent. That duo combine to run seven integrated resorts in the gaming enclave.
“Ongoing recovery the companies’ cash flow in Macao has aided improvement in leverage. It will also provide the two companies with financial cushion to absorb a potential large[1]scale, multi-year casino project if they secure one of the New York licenses,” concluded S&P.