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By clicking “I AGREE”, you indicate that you understand and intend these terms and conditions to be the legal equivalent of a signed, written contract and equally binding, and that you accept such terms and conditions as a condition of viewing any and all Moody’s information that becomes accessible to you (the “Information”). References herein to “Moody’s” include Moody’s Corporation. and each of its subsidiaries and affiliates..

 

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Rating Action:

Moody's confirms SJM Holdings' ratings following completion of refinancing; outlook negative

27 Jun 2022

Hong Kong, June 27, 2022 -- Moody's Investors Service has confirmed SJM Holdings Limited's Ba3 corporate family rating (CFR) and the B1 rating on the backed senior unsecured bonds issued by Champion Path Holdings Limited and guaranteed by SJM.

Moody's has also revised the outlooks on these entities to negative from ratings under review.

This concludes the review for downgrade initiated on 25 October 2021.

"The confirmation of the ratings reflects the completed refinancing of SJM's loan facilities, which now provide the company with adequate liquidity for at least the next 12 months," says Sean Hwang, a Moody's Assistant Vice President and Analyst.

"That said, the negative outlook reflects the high uncertainty surrounding the pace and extent of SJM's earnings recovery, and our view that SJM's financial leverage will likely remain very high over the next 12-18 months," says Hwang.

RATINGS RATIONALE

SJM announced on 23 June 2022 that it had executed its HKD9 billion term loan facility and HKD10 billion revolving credit facility (revolver) with a syndicate of banks. The seven-year loan facilities will be used to repay SJM's existing loans and replenish its liquidity.

Following the refinancing, SJM no longer has large bullet maturities of debt until January 2026, while its new term loan will amortize quarterly in modest amounts from September 2023. SJM's cash and availability under the revolver – totaling HKD6.0 billion-HKD6.5 billion based on Moody's estimate – will be sufficient to cover its cash needs for at least the next 12 months, including some construction payments due during this period and the cash burn that is likely to continue for the remainder of 2022.

Moody's expects SJM's adjusted debt – including lease liabilities – to increase to around HKD30 billion over the next 12-18 months from HKD23.6 billion as of the end of 2021. This forecast factors in the expected revolver drawdown during this period and the HKD1.9 billion convertible bond from Sociedade de Turismo e Diversões de Macau (STDM) for SJM's acquisition of the Oceanus property.

At the same time, recovery in SJM's earnings will likely be protracted, as highlighted by the recent resurgence of Covid cases and the strengthening of travel restrictions in Macao SAR, China. Moody's currently assumes that Macao's mass-market gaming revenue will be around 40% of 2019 levels this year, before improving to 80% in 2023, with a full recovery in 2024. VIP revenue is unlikely to recover significantly because of the regulatory crackdown on junkets.

Given the above expectations, Moody's forecasts SJM's adjusted debt/EBITDA will exceed 10x in 2023 and only fall to 5.1x in 2024. This level of financial metrics in 2024 is still commensurate with SJM's Ba3 CFR, but significant risks exist over the assumed pace and magnitude of earnings recovery, driving the negative outlook.

SJM's Ba3 CFR continues to reflect its established gaming operations in Macao given its operational history of more than 50 years, as well as the company's conservative financial track record, which mitigates the risk associated with its geographic concentration in Macao.

The B1 rating on Champion Path Holdings Limited's senior unsecured notes is one notch lower than SJM's CFR because bank loans and subsidiary-level liabilities will remain a significant portion of SJM's liability structure even after the refinancing, and thus, have priority over the senior unsecured claims at the holding company in a default scenario.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) CONSIDERATIONS

SJM Holdings' ESG Credit Impact Score is highly negative (CIS-4), mainly reflecting its highly negative exposure to social and governance risks.

SJM's social risks are driven mainly by the responsibility of gaming operators to prevent money laundering and problem gambling, as highlighted by Macao's gaming law revision in 2022. SJM also faces long-term risks around evolving consumer preferences that may not favor traditional casino gaming. However, this risk is partly offset by the growing entertainment spending and limited threats from online gambling in Asia.

SJM's governance risks mainly reflect the concentrated ownership and control of SJM by STDM and the previous delay in addressing loan maturities, which raised a degree of concern over SJM's financing execution and liquidity management. These risks are counterbalanced by SJM's track record of a conservative financial strategy.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

An upgrade of SJM's ratings is unlikely at present, given the negative outlook.

Moody's could revise SJM's outlook to stable if SJM improves its earnings, contains debt growth and maintains adequate liquidity. Credit metrics indicative of this scenario include SJM's adjusted debt/EBITDA falling below 5.5x on a sustained basis.

Moody's could downgrade SJM's ratings if the rating agency expects that the company's adjusted debt/EBITDA will stay above 5.5x, due to a prolonged weakness in earnings or a higher-than-expected increase in debt. This situation could arise from the impact of a protracted pandemic.

The principal methodology used in these ratings was Gaming published in June 2021 and available at https://ratings.moodys.com/api/rmc-documents/72953. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

SJM Holdings Limited develops and operates casinos and integrated resort facilities in Macao SAR. The company is listed on the Hong Kong Stock Exchange, and is 54% owned by Sociedade de Turismo e Diversões de Macau (STDM).

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 on https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 issuer/deal page for the respective issuer on https://ratings.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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entities are participating and the rated entities or their agent(s) generally provide Moody's with information for the purposes of its ratings process. Please refer to https://ratings.moodys.com for the Regulatory Disclosures for each credit rating action, shown on the issuer/deal page, and for Moody's Policy for Designating Non-Participating Rated Entities, shown on https://ratings.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.

Please see https://ratings.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 issuer/deal page on https://ratings.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
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.)
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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