Hong Kong, July 14, 2020 -- Moody's Investors Service has assigned a Ba2 rating to the proposed
senior unsecured USD notes to be issued by Melco Resorts Finance Limited
(MRF, Ba2 negative).
The rating outlook is negative.
MRF will use the notes proceeds for repayment of existing debt at its
subsidiary MCO Nominee One Limited, as well as for general corporate
purposes.
RATINGS RATIONALE
"The Ba2 rating reflects the established operations and high-quality
assets of the group under the parent Melco Resorts & Entertainment
Limited (MRE), which counterbalance the group's geographic
concentration in Macao SAR's gaming market," says Sean
Hwang, a Moody's Analyst.
MRF's credit quality and ratings are driven by the consolidated
credit quality of its parent MRE, because MRF is 100%-owned
by MRE, and MRE relies heavily on MRF for profit generation and
funding.
In addition, the proposed note issuance, together with Studio
City Finance Limited's recent notes issuance and Studio City International
Holdings Limited's equity offering, will further strengthen
MRE's liquidity.
MRE's liquidity sources, including its consolidated unrestricted
cash of USD1.2 billion at the end of March 2020, a new USD1.9
billion five-year revolving credit facility and proceeds of about
USD355 million from the disposal of its stake in Crown Resorts Limited
(Baa2 negative), provide adequate cushions against potential cash
burn at least for the next 12 months.
"However, the rating outlook remains negative, reflecting
the steep drop in the group's earnings in 2020 amid coronavirus-induced
disruptions, and the high uncertainties over the timing and extent
of future earnings recovery," adds Hwang.
MRE's consolidated revenue declined 41% to USD811 million in the
first quarter of 2020 from USD1,383 million a year earlier,
mainly as a result of the stringent travel restrictions and facility closures
in its key markets, namely Macao SAR (Aa3 stable) and the Philippines
(Baa2 stable). This revenue decline led to its reported EBITDA
falling to USD55 million from USD388 million over the same period.
Moody's expects negative EBITDA for the company for the second quarter
of 2020.
Weakened earnings, coupled with the group's planned capital
spending, will result in significant negative free cash flow and
an increase in net debt until sufficient recovery takes hold.
While Moody's expects MRE's earnings and cash flow to improve gradually
from the second half of 2020 once disruptions ease, the company's
financial metrics in 2021 will likely fall short of 2019 levels.
Also, there is significant downside risk to this recovery assumption.
The Ba2 rating for the proposed senior unsecured notes is in line with
the company's corporate family rating, because Moody's expects
the company to keep its secured debt at a low level.
In terms of environmental, social and governance (ESG) considerations,
the ratings factor in the high social risk stemming from the fact that
Macao SAR remains susceptible to potential economic and policy outcomes
in China, which could negatively affect MRE's gaming and tourism
business.
Moody's regards the impact of coronavirus outbreak on its operations as
a social risk under its ESG framework, given the substantial implications
for public health and safety.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
MRF's outlook can return to stable if the Melco group under MRE improves
its earnings, contains its debt growth and continues to maintain
its sizeable cash. This can be evidenced by MRE's adjusted debt/EBITDA
falling below 4.5x-5.0x on a sustained basis.
MRF's ratings could be downgraded if Moody's believes that MRE's adjusted
debt/EBITDA is unlikely to return to below 4.5x-5.0x
on a sustained basis, due to a sustained weakness in earnings or
a significant increase in debt, or if MRE's liquidity weakens significantly.
This situation can result from a protracted and severe impact of the coronavirus
outbreak or the company's continuation of an aggressive financial
policy during the earnings downturn.
In addition, the ratings on MRF's senior unsecured notes could come
under pressure in the event of a sustained increase in MRF's subsidiary-level
priority claims relative to its consolidated claims.
The principal methodology used in this rating was Gaming Industry published
in December 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1099757.
Alternatively, 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 & Entertainment Limited, 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 Macao SAR.
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 operates the gaming business
at the casino of Studio City.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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Sean Hwang
Asst Vice President - 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.)
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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
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China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077