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Rating Action:

Moody's affirms Melco Resorts Finance's Ba2 ratings and assigns Ba2 to proposed notes; outlook stable

17 Apr 2019

Hong Kong, April 17, 2019 -- Moody's Investors Service has affirmed Melco Resorts Finance Limited's Ba2 corporate family rating as well as the Ba2 senior unsecured rating for the company's existing $1 billion senior unsecured notes due 2025.

At the same time, Moody's has assigned a Ba2 rating to the proposed US dollar senior unsecured notes to be issued by Melco Resorts Finance Limited.

Melco Resorts Finance plans to use the bond proceeds to partially repay the principal amount outstanding under the 2015 Revolving Credit Facility at its subsidiary Melco Resorts (Macau) Limited.

The rating outlook is stable.

RATINGS RATIONALE

"The affirmation of Melco Resorts Finance's ratings reflects its established operations in Macau and our expectation that the operating environment will remain largely supportive over the next 12-18 months, which mitigates its high geographic concentration and the increase in the company's financial leverage in the second half of 2018," says Sean Hwang, a Moody's Analyst.

Melco Resorts Finance's adjusted debt/EBITDA increased to around 3.3x in 2018 -- including Moody's standard adjustments -- from 2.0x a year earlier, as its debt increased by $1.1 billion mainly to help fund a share repurchase by its parent Melco Resorts & Entertainment Limited as well as the parent's increase of its stake in its Philippine subsidiary.

The increase in debt has materially reduced Melco Resorts Finance's financial buffer, but does not have an immediate ratings impact because Moody's expects the company's adjusted debt/EBITDA to improve to below 3.0x by 2020, supported by expected earnings growth and reduced capital spending. This expectation also assumes that the company will not make a further major debt-funded distribution to its parent. This expected level of financial leverage will be consistent with the company's Ba2 rating category.

Moody's expects Melco Resorts Finance's annual adjusted EBITDA will grow to around $830 -$850 million over the next 12-18 months from around $780 million in 2018, driven by (1) the continued ramp-up of the Morpheus hotel that opened in June 2018, (2) the reversal of win rates to a more normal range from the low levels seen in 2018, and (3) Moody's expectation for largely supportive gaming demand in Macau, particularly in the mass-market segment.

The transfer of the operation of 45 VIP gaming tables from the casino at Studio City to Melco Resorts (Macau) Limited's City of Dreams or Altira properties starting from January 2020 will provide further support to Melco Resorts Finance's earnings in 2020.

Melco Resorts Finance's capital spending should decline to around $230-$250 million in 2019 from $389 million in 2018, which will allow the company to generate positive free cash flow and reduce debt.

The Ba2 rating for the proposed senior unsecured offering is in line with the company's corporate family rating, reflecting Moody's expectation that the partial redemption of the outstanding balance under the subsidiary-level revolving credit facility will reduce the claims at the subsidiary to a more manageable level.

Melco Resorts Finance's liquidity profile is good. Its cash holdings of $0.9 billion at the end of 2018 and operating cash flow are sufficient to cover its capital spending and debt amortization over the next 12 months.

Melco Resorts Finance's ratings also factor in the likelihood that Melco Resorts Finance will provide financial support to its parent Melco Resorts and Entertainment in case of need, which recorded adjusted debt/EBITDA of around 3.6x in 2018.

The stable ratings outlook reflects Moody's expectation that Melco Resorts Finance will improve its earnings and financial profile, and will not use debt to fund a further major distribution to its parent over the next 12-18 months.

The ratings could be upgraded if (1) Melco Resorts Finance improves its financial profile such that adjusted debt/EBITDA stays below 1.6x-1.8x on a sustained basis; and (2) Melco Resorts & Entertainment establishes a longer track record of maintaining a conservative investment strategy and financial management.

The ratings could be downgraded if (1) the operating performances of Melco Resorts Finance and Melco Resorts & Entertainment significantly deteriorate as a result of a material slowdown in Macau's gaming market, or if there is stronger-than-expected competition; (2) a major construction project is vested at Melco Resorts Finance, increasing its financial risk; or (3) Melco Resorts & Entertainment's financial profile weakens materially as a result of significant debt-funded investments and/or a deterioration in its operating performance, resulting in the likelihood of higher dividend payouts from Melco Resorts Finance.

Metrics indicative of a possible downgrade include adjusted debt/EBITDA in excess of 3.5x-4.0x for Melco Resorts Finance.

The principal methodology used in these ratings was Gaming Industry published in December 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Melco Resorts Finance Limited is a wholly-owned subsidiary of Melco Resorts and Entertainment, which is listed on the NASDAQ exchange and is majority-owned by the Hong Kong-listed Melco International Development Ltd. All of Melco Resorts Finance's operations are currently located in Macau.

Through Melco Resorts (Macau) Limited, Melco Resorts Finance operates two wholly-owned casinos in the territory, namely, Altira Macau and City of Dreams. It also has non-casino based operations at its Mocha Clubs, and provides both gaming and non-gaming services to Studio City.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

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Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Sean Hwang
Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Chris Park
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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