Published on: November 27, 2024, 04:20h.
Last updated on: November 27, 2024, 04:20h.
Wynn Resorts’ (NASDAQ: WYNN) financial unit received a credit outlook upgrade to “positive” from “stable” by Moody’s Investors Service. Despite maintaining a “B1” rating on Wynn’s debt — which is four notches into junk territory.
Moody’s referenced the ongoing recovery in Macau and the strength at Wynn’s Las Vegas and Encore Boston Harbor casinos as reasons for the upgrade. The results for Macau operators in the third quarter were modest, however, the gross gaming revenue (GGR) in Macau has significantly improved since the beginning of the pandemic, with further growth expected in 2025.
The credit affirmation and positive outlook reflect our expectation of enhanced leverage for Wynn in the mid 5x debt/earnings before interest, taxes, depreciation, and amortization (EBITDA) range for 2024, as Macau’s gaming market has shown significant improvement and the strong performance at the company’s Las Vegas and Encore Boston Harbor properties have contributed to revenue and EBITDA growth,” observed Moody’s.
Moody’s also highlighted that Wynn’s improved credit position is a result of “the quality, popularity, and favorable reputation of the company’s resort properties,” which Moody’s considers as distinctive factors.
Wynn ‘Positive’ Outlook Has Merit
At the end of the September quarter, Wynn had $1.34 billion in cash and $11.79 billion in debt. The efforts to reduce the debt are one of the reasons for Moody’s outlook upgrade.
The research firm acknowledged Wynn’s efforts in reducing its debt burden. Such initiatives are typically viewed positively by credit rating agencies and can lead to improved credit ratings, resulting in lower financing costs.
“The positive outlook also acknowledges the company’s recent debt reduction, with almost $1.2 billion of debt permanently reduced. The positive outlook also considers our belief that the company will uphold good liquidity with substantial cash reserves,” Moody’s stated.
The research firm also noted that the positive outlook for Wynn is based on expectations of ongoing EBITDA growth in Macau and broader revenue expansion. If these expectations are met, the operator should be able to maintain strong liquidity while reducing outstanding debts.
Wynn UAE Casino Could Provide Assistance
Wynn’s current portfolio includes two integrated resorts in Macau, Wynn and Encore Las Vegas, and Encore Boston Harbor. Moody’s noted this lack of geographic diversity as a potential credit risk.
The under-construction casino resort in Ras Al Khaimah, United Arab Emirates (UAE) adds geographic diversity. This venue, named Wynn Al Marjan Island, is expected to open in early 2027 and will have a monopoly for several years in what could become one of the largest gaming markets globally.
For a potential ratings upgrade, Moody’s suggests that Wynn needs to maintain good liquidity and continue reducing debt.
“Ratings could be upgraded if debt/EBITDA on a Moody’s adjusted basis remains well below 6x. Good liquidity and sustained revenue growth with strong positive free cash flow would also be necessary for an upgrade,” concluded the ratings agency.