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Rating Action:

Moody's assigns (P)B1 to MCE Finance's proposed bonds

 The document has been translated in other languages

29 Jan 2013

Hong Kong, January 29, 2013 -- Moody's Investors Service has today assigned a provisional (P)B1 rating to the US dollar bonds proposed by MCE Finance Limited.

At the same time, Moody's has affirmed the Ba3 corporate family rating and B1 senior unsecured rating of MCE Finance, and the Ba3 secured debt rating of Melco Crown Gaming (Macau) Limited ("Melco Crown Gaming").

The above rating actions follow MCE Finance's announcement of 1) its proposed issuance of the US dollar bonds, 2) its offer to buy back its existing US$600 million bonds, and 3) its solicitation of consents for amendments to the terms of the US$600 million bonds.

The outlook for all ratings is stable.

MCE Finance, wholly-owned by Melco Crown Entertainment Limited (unrated), owns a 100% economic interest in Melco Crown Gaming.

Melco Crown Gaming in turn runs the group's major operating assets in Macau, including Altira Macau, the City of Dreams, and approximately 2,100 slot machines through its Mocha Clubs.

MCE Finance plans to use the bond proceeds to redeem early its existing US$600 million bonds and to repay part of Melco Crown Entertainment Limited's RMB2.3 billion bonds.

The rating's provisional status will be removed upon MCE Finance completing the bond issuance upon satisfactory terms and conditions.

RATINGS RATIONALE

"Moody's expects MCE Finance's gross debt will rise because MCE Finance will use the proceeds to refinance its own debt, and also provide funding to its parent, Melco Crown Entertainment Limited, to take out its RMB2.3 billion debt," says Kaven Tsang, a Moody's Vice President and Senior Analyst.

"At the same time, despite this rise in debt, MCE Finance will maintain credit metrics within the Ba3 level because of the lower interest rates offered by the proposed bonds and Melco Crown Gaming's improving performance," adds Tsang.

Moody's projects MCE Finance's Debt/EBITDA to stay at 2x-2.5x and interest coverage of around 9.5x in the next 2 years, therefore positioning the company within the Ba3 rating.

Additionally, the new bonds will improve MCE Finance's funding stability by lengthening its debt maturity profile.

"On the other hand, the looser covenants for MCE Finance's proposed bonds and the consents solicitation indicate that MCE Finance will very likely provide financial support to the group's new project, Studio City. The latter is owned by Melco Crown Entertainment Limited through its 60%-owned subsidiary, Studio City Finance Limited (B2 stable)," says Tsang, adding, "For MCE Finance's lenders, this is credit negative."

Moody's expects that MCE Finance will only use the surplus cash after servicing payments under its secured bank loans and the bonds to support its parent's cash needs. Thus the remaining proceeds from the proposed bonds after servicing the existing US$600 million bonds and approximately US$1 billion of cash in the restricted payment basket will be available for distribution to Melco Crown Entertainment Limited in the next 12 months.

Macau's gaming revenue grew by 13.5% year-on-year in 2012 and a stable growth is expected for 2013. Moody's expects Melco Crown Gaming will maintain moderate revenue growth in the next 12--18 months which in turn supports MCE Finance's liquidity position and credit metrics.

Such expected stability assumes that MCE Finance only distributes its surplus cash flow and does not raise further debt to upstream to its parent.

With the bond issue, Melco Crown Entertainment Limited will draw on MCE Finance's cash flow to support the Studio City project.

Therefore, Moody's has changed its rating approach towards MCE Finance's ratings by also considering Melco Crown Entertainment Limited's consolidated financials. This is to ensure that Melco Crown Entertainment Limited's financial and liquidity profiles will not deteriorate materially due to any project delay or cost overrun at the Studio City project. In such case, Melco Crown Entertainment Limited may need additional funding support from MCE Finance.

Moody's expects MCE Finance to stay positioned at the Ba3 rating level so long as Melco Crown Entertainment Limited can keep consolidated Debt/EBITDA at 4.0x-4.5x and EBITDA interest at 4.5x-5.0x in the next 2 years.

Furthermore, MCE Finance's Ba3 corporate family rating continues to reflect its stable gaming operation through Melco Crown Gaming -- the key operating entity that holds the gaming concession and two major casino properties, Altira Macau and the City of Dreams.

On the other hand, the rating is constrained by the group's geographic concentration and heavy reliance on the operations of its two major properties.

MCE Finance's B1 bond rating reflects structural and legal subordination, and is one notch below the corporate family rating, reflecting the risk of structural and legal subordination. The secured and subsidiary debt -- mainly that of Melco Crown Gaming -- represented 15-20% of the rated group's total tangible assets as of September 2012.

The Ba3 secured loan rating for Melco Crown Gaming's secured bank loans reflects the fact that such syndicated loans represent the rated group's major external secured borrowings, and that all of the rated group's key operating assets have been pledged to support these loans.

The stable outlook reflects Moody's expectation that MCE Finance will maintain stable operations, supported by moderate growth in gaming revenue over the medium term in Macau.

The ratings could experience downward pressure if: (1) MCE Finance's operating performance deteriorates due to a large market slowdown, or higher-than-expected competition; or (2) there is a rise in the consolidated debt leverage of Melco Crown Entertainment Limited because it is funding new projects.

Moody's will consider a downgrade of the ratings (1) if both MCE Finance's own Debt/EBITDA exceeds 3.5x - 4.0x and Melco Crown Entertainment Limited's consolidated Debt/EBITDA exceeds 5.0x-5.5x, or (2) if MCE Finance's EBTIDA interest coverage falls below 4.0x -- 4.5x and consolidated EBITDA interest coverage falls below 3.0x -- 3.5x.

On the other hand, upgrade pressure could emerge over the medium term if: (1) MCE Finance demonstrates further improvements in EBITDA throughout the cycle and maintains Debt/EBITDA below 2.0x and EBITDA/interest above 6.0x-7.0x; and (2) Melco Crown Entertainment Limited successfully manages the construction risks associated with Studio City over the next two-three years, and achieves consolidated Debt/EBITDA below 3.5x and consolidated EBITDA/Interest above 5.5x-6.0x on a sustained basis.

The principal methodology used in this rating was Global Gaming Industry Methodology published in December 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

MCE Finance Limited is a subsidiary of Melco Crown Entertainment Limited (unrated), which is majority-owned by the Australian-based gaming operator, Crown Limited (Baa2 stable) and Hong Kong-listed Melco International Development Ltd (unrated), with each company holding 33.36% equity stakes. MCE Finance also owns a 100% economic interest in Melco Crown Gaming (Macau) Limited.

Melco Crown Gaming is the key operating company within the MCE Finance group. It holds one of six gaming concessions/sub-concessions 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

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.

Kaven Tsang
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
SUBSCRIBERS: (852) 3551-3077

Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077

Moody's assigns (P)B1 to MCE Finance's proposed bonds
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