Fitch Rates Wynn Macau's $3B Sr. Secured Credit Facility 'BBB-'

viernes 2 de octubre de 2015 15:08 GYT
 

(The following statement was released by the rating agency) NEW YORK, October 02 (Fitch) Fitch Ratings has assigned a 'BBB-/RR1' rating to Wynn Resorts (Macau) S.A.'s (WRM) $3.05 billion senior secured credit facility. WRM's current Issuer Default Rating (IDR) is 'BB', and its Rating Outlook is Stable. WRM's IDR is linked to the IDRs of the ultimate parent company Wynn Resorts Ltd (Wynn) and other rated subsidiaries including Wynn Macau Ltd, the Hong Kong listed parent of WRM. The new credit facility is made of a $2.3 billion term loan and a $750 million revolver, representing an increase of $550 million from the existing facility. The credit facility also includes a $1 billion accordion option. The maturity of the revolver has been extended to September 2020 from July 2017 and the maturity of the term loan to September 2021 from July 2018. The term loan will amortize at a rate of 2.5% to 7.33% per quarter with 50% of the loan due at maturity, which is about nine months before Wynn Resorts (Macau)'s gaming concession expiration in Macau (June 2022). The credit facility will be secured by the assets of, and equity interest in, WRM including the Wynn Palace subsidiary, Palo Real Estate Company Limited. The proceeds from the credit facility will be used to finance the development of WRM's $4.1 billion Wynn Palace, due to open March 2016, refinance the existing facility ($1.5 billion outstanding as of June 30, 2015), and provide additional liquidity to the consolidated Macau operations. The draw on the term loan increases WRM's debt by about $800 million. Pro forma gross leverage increases to 2.8x from 1.9x through the WRM credit facility and 4.5x from 3.5x through the unsecured notes at Wynn Macau Ltd (WRM does not guarantee the notes). The debt increase in Macau is in line with Fitch's prior forecasts, which assumed the Wynn Macau subsidiaries raising a total of $1.4 billion of debt in 2015 and no further debt raises in 2016. Fitch believes Wynn Palace is now fully funded, the need to draw on the Macau revolver will be limited and seeking commitments for the accordion will not be necessary to finish Wynn Palace. Fitch's base case forecast estimates WRM's gross leverage increasing to 4.2x by year-end 2015 and declining to 3.0x and 2.1x in 2016 and 2017, respectively, as Wynn Palace ramps ups. Wynn Macau Ltd's gross leverage in 2015, 2016, and 2017 is estimated by Fitch at 6.5x, 4.5x and 3.5x. Fitch estimates Wynn Macau's EBITDA after management fees and corporates expenses at approximately $600 million, $870 million and $950 million for 2015, 2016, and 2017, respectively. The credit facility's leverage based covenants include WRM level debt only and Fitch expects WRM to remain compliant with its covenants. Key Rating Drivers Wynn's liquidity is adequate with minimal debt maturities coming due in the near term and the company taking measures to shore up liquidity including cutting its parent level dividends and increasing its Macau credit facility. However, the pressure on EBITDA stemming from the operating pressure in Macau pushes Wynn's consolidated leverage ratios above Fitch's thresholds for 'BB' IDR over the next two to three years. After Wynn Everett opens in late 2018, Fitch expects Wynn's gross leverage to approach 5x, which is more consistent with the existing 'BB' IDR. At that time the company will have a major presence in a third gateway market and will solidify its position in Macau with a more mass market oriented property. Wynn's 'BB' IDR further takes into account the company's historical willingness to reduce shareholder friendly activity during operating downturns and its reluctance to overextend itself when bidding for new gaming licenses. Fitch forecasts Wynn's gross and net leverage to increase to roughly 9x and 7x, respectively, by the end of 2015 after borrowing to fund Wynn Everett and Wynn Palace development capex. Fitch calculated gross and net leverage ratios will start to moderate to around 8x and 6x towards the end of 2016, respectively, when Wynn Palace starts to ramp up. The leverage ratios will start to move closer to 5x and 4x, respectively, by late 2018 when Wynn Everett opens. (Fitch subtracts income attributable to minority interest and cash-based corporate expense from EBITDA when calculating leverage.) For Wynn, Fitch links the IDRs of the parent company and its subsidiaries reflecting strategic and organizational/capital structure considerations. The company's subsidiaries share branding and management plus the parent company can pull cash from the stronger, larger Asian subsidiaries (subject to the credit facility covenants) to support the weaker U.S. subsidiaries. Macau Outlook Fitch projects Macau's 2015 gaming revenues will decline 33%-34% on top of a 3% decline in 2014. On a sequential basis, gaming revenues may have found a bottom with monthly revenues coming in at around $2.2 billion or higher since June. September's revenue was closer to $2.1 billion but could potentially be explained by the normal lull before October's Golden Week, which started Oct. 1. Fitch's 2015 forecast assumes that the current volumes will be maintained and increase slightly after Studio City opens in late October. Fitch expects 2016 to be relatively flat. The positive impact from the increase in capacity related to Studio City, the March opening of Wynn Palace and second-half 2016 openings of MGM Cotai and Parisian will be offset by tough year-over-year comparisons through May 2016 and the weaker Yuan relative to Macau's Pataca. The risks operators face related to the new properties cannibalizing the existing ones and table allocations being less generous than what the operators have requested are partially mitigated by the operators' ability to shed development-related cost as their respective projects open. Specifically, operators' margins will get a boost from shifting the excess labor to their new properties once open. Fitch does not expect the recent stock market volatility in China to have a material impact on Macau's visitation. Fitch's sovereign analysts think that a mainland economic collapse is unlikely, despite this volatility. They add that the slowdown is led by investment rather than consumption, making it less dire than may appear for Macau, particularly for the mass segment. However, Fitch does expect a structural slowdown with sustained deceleration in the GDP growth. Macau's decision to loosen the transit visa restrictions should have some positive benefit and shows that Macau is willing to use levers it has to prop up its gaming-centric economy. Macau also took its foot off the gas with respect to implementing a full smoking ban and has said it will study the matter further before implementation. The long-term positive outlook for Macau remains intact as Fitch continues to believe that the APAC region is underpenetrated, at least as far a mass market is concerned. The pending infrastructure projects such as the bridge to Hong Kong and the light rail project, despite being delayed, should make Macau more accessible. For the new wave of developments Fitch expects subpar returns on investment (generally less than 10%) in the initial years but expects the returns to improve over time as the market pivots toward the mass segment and the infrastructure projects come online. KEY ASSUMPTIONS --Wynn's consolidated revenues will decline by 24% in 2015 reflecting a 33% decline at Wynn Macau, and same-store revenues will grow by low-single digits thereafter. Wynn Palace will open March 2016 and Wynn Everett in late 2018. Fitch assumes $1.14 billion and $1.16 billion of incremental revenues from Wynn Palace (200 tables assumed) and Wynn Everett, respectively. --Fitch estimates property EBITDA margins of about 30% for Wynn through the projection horizon. --Wynn's corporate dividends will remain around $200 million per year until all projects open; Wynn Macau dividends will be $280 million in 2017-2019 with no Macau dividends in 2016; no other development capex will be undertaken; and there will be no resolution to the Okada lawsuit. RATING SENSITIVITIES Fitch may downgrade Wynn's IDR or revise the Outlook to Negative if Wynn increases its corporate dividends during the current development cycle absent a commensurate Macau recovery; if Macau weakness becomes more severe or persistent relative to Fitch's expectation; or if Wynn starts another major expansion project (e.g. Japan) where spending overlaps with the existing development pipeline. Gross leverage and net leverage sustaining above 5x and 4x, respectively, following the opening of Wynn Everett may also lead to negative rating pressure. There is low probability of positive rating pressure in the near to medium term absent a stronger than expected recovery in Macau. Longer-term, Fitch may consider a positive rating action when gross leverage starts to approach 4x and net leverage is below 4x. FULL LIST OF RATINGS Fitch currently rates Wynn as follows: Wynn Resorts, Limited --IDR 'BB'; Outlook Stable. Wynn Las Vegas, LLC --IDR 'BB'; Outlook Stable; --Senior secured first mortgage notes 'BB+/RR2'; --Senior unsecured notes 'BB/RR4'. Wynn America, LLC --IDR 'BB'; Outlook Stable; --Senior secured credit facility 'BB+/RR2'. Wynn Resorts (Macau), SA --IDR at 'BB'; Outlook Stable; --Senior secured credit facility 'BBB-/RR1'. Wynn Macau, Ltd --IDR at 'BB'; Outlook Stable; --Senior notes 'BB/RR4'. Contact: Primary Analyst Alex Bumazhny, CFA Director +1-212-908-9179 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Michael Paladino, CFA Managing Director +1-212-908-9113 Committee Chairperson Jack Kranefuss Senior Director +1-212-908-0791 Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email: alyssa.castelli@fitchratings.com. Date of Relevant Rating Committee: May 28, 2015 Additional information is available at 'www.fitchratings.com'. Related Research: --'GLL Asia Trip Takeaways (Affirming All Three U.S.-Based Macau Operators Factoring in Macau Weakness)' (May 29, 2015); --'All In: Global Gaming Handbook' (Sept. 23, 2015). Applicable Criteria Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015) here Country-Specific Treatment of Recovery Ratings (pub. 28 Jun 2013) here Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers (pub. 12 Jun 2015) here Additional Disclosures Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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