Posted on: February 4, 2024, 08:02h.
Last updated on: February 4, 2024, 08:02h.
During the worst days of COVID-19, Macau casino concessionaires took on significant levels of debt just to survive. Despite upcoming obligations, issuers are expected to manage well.
Handling corporate bonds in Macau, many of which held junk grades and high interest rates, is a key concern for issuers and investors. Rated issuers are expected to have between 5% to 27% of their bonds maturing in 2024-2025.
Issuers will likely push back refinancing plans as much as possible for 2025 maturities to lower the cost of debt, given the elevated U.S. dollar interest rates and improving free cash flow generation in Macao. Issuers could partially pay down these maturities with a common target to lower leverage,” according to the research firm.
S&P added that MGM China and Wynn Macau have the cash on hand and access to revolving credit needed to manage 2024 maturities without refinancing. Companies typically refinance debt to extend maturities, but it’s preferable to handle these obligations without seeking maturity extensions.
Creditors Likely to Support Macau Casino Operators
Banks loaned capital to Macau casino operators in 2021 and 2022, positioning themselves for today’s gains. Providing capital to operators in a down period was essentially a wager on Macau’s recovery, and that bet is paying off.
Financial institutions are bullish on Macau gaming bonds, signaling that the asset class is among the most preferred when it comes to China-linked high-yield debt.
“While some of these 2025 maturities will become current debt in the next two quarters, we believe issuers have sufficient cash resources to sustain their liquidity positions,” says S&P. “We also expect issuers to get incremental support from their banks given the market’s strong recovery. These banks supported the issuers even through the difficult pandemic period.”
Encouraging Signs for Macau Casino Operators’ Debt
Overall, the six concessionaires took on more than $20 billion in new debt due to the COVID-19 crisis, but resurgent free cash flow to equity levels are damping risks associated with outstanding obligations. Plus, market participants are bullish on Macau gaming bonds, signaling that the asset class is among the most preferred when it comes to China-linked high-yield debt.
Additionally, credit ratings and outlooks for some Macau operators, including Sands China and Wynn Macau, are decent. That duo combine to run seven integrated resorts in the gaming enclave.
“Ongoing recovery the companies’ cash flow in Macao has aided improvement in leverage. It will also provide the two companies with financial cushion to absorb a potential large-scale, multi-year casino project if they secure one of the New York licenses,” concluded S&P.