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Related Issuers
Rating Action:

Moody's assigns B2 to Studio City's proposed USD notes

22 Jan 2019

Hong Kong, January 22, 2019 -- Moody's Investors Services has assigned a B2 senior unsecured rating to the proposed US dollar notes to be issued by Studio City Finance Limited (B1 stable). The notes will be guaranteed by all of its existing subsidiaries.

The rating outlook is stable.

Studio City plans to use the proceeds from the issuance -- together with the proceeds from the initial public offering (IPO) of Studio City International Holdings Limited -- to primarily refinance the company's existing $825 million senior unsecured notes due 2020.

RATINGS RATIONALE

"Studio City's B1 corporate family rating primarily reflects the company's improving business profile following the successful ramp up of its casino operations and the recovery in Macao's gaming revenue, which has in turn enhanced its earnings and credit metrics," says Stephanie Lau, a Moody's Vice President and Senior Analyst.

"On the other hand, the rating is constrained by the company's geographical concentration and moderate financial metrics," adds Lau.

The B2 rating of the proposed notes is one notch lower than Studio City's B1 corporate family rating because of the risk of legal subordination, reflecting the fact that a large portion of its debt comprises secured debt.

The planned refinancing transaction is credit positive, because it will extend Studio City's debt maturity, thereby increasing financial headroom against future capital spending.

Moody's expects Studio City's total reported debt to increase only moderately over the next 1-2 years, from $2.0 billion as of 30 September 2018, because debt reductions from the initial public offering (IPO) proceeds of its parent - Studio City International Holdings Limited - will partly offset incremental debt to fund its capital spending associated with the phase two expansion project.

The rating also factors in Moody's expectation that Studio City's adjusted EBITDA will remain healthy over the next 1-2 years, at around $300-$330 million annually, similar to the $306 million recorded for the 12 months to September 2018.

This expectation reflects the company's strategic focus on the premium mass-market segment, which exhibits greater resilience to economic cycles and higher profitability than the VIP segment. While the cessation of VIP rolling chip operations from January 2020 will have the effect of reducing earnings, the negative impact will be manageable.

Given the above expectations, Moody's projects that Studio City's adjusted debt/EBITDA will register around 6.7x-7.3x over FY2019 and FY2020, similar to the 6.5x recorded for the 12 months to September 2018. Likewise, the company's EBITDA/interest will likely remain largely steady at around 2.0x over the same period. These projected financial metrics are consistent with the company's B2-level standalone credit strength.

Studio City's ratings continue to incorporate a one-notch uplift, reflecting Moody's expected likelihood of extraordinary support from its parent -- Melco Resorts & Entertainment Limited -- given Studio City's increasing importance to the parent and the parent's solid financial flexibility.

The stable rating outlook reflects Moody's expectations that Studio City's operating performance will remain healthy, and that its credit metrics will remain stable over the course of its phase two construction.

Studio City Finance's ratings could be upgraded if it enhances its scale and financial profile. Specifically, upward rating pressure would emerge if debt/EBITDA declines below 5.0x-5.5x and EBITDA/interest rises above 3.0x on a sustained basis.

On the other hand, the ratings could be downgraded if it engages in (1) aggressive expansion and capital spending; and/or (2) its operations deteriorate, resulting in tight liquidity and high leverage on a sustained basis.

Specifically, downward rating pressure would emerge if debt/EBITDA exceeds 7.5x-8.0x and EBITDA/interest coverage falls below 1.8x on a sustained basis.

In addition, a decline in the ability or willingness of its parent -- Melco Resorts & Entertainment Limited -- to provide support would also lead to downgrade pressure.

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

Studio City Finance Limited is a holding company incorporated in the British Virgin Islands. Through its subsidiaries, it develops and operates the Studio City property, an Asian-focused integrated gaming and entertainment resort located at Cotai in Macau.

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.

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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.

Stephanie Lau
Vice President - Senior 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.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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