Published on: December 12, 2023, 03:04h.
Last updated on: December 12, 2023, 03:04h.
The latest on Wynn Resorts’ (NASDAQ: WYNN) corporate credit rating shows a positive outlook as Moody’s Investors Service upgraded it to “stable.” The casino operator’s declining leverage is a major reason for this move.
The ratings agency has confirmed the casino company’s credit rating at “B1”. Macau, a key market for Wynn, is rebounding, which is supporting the Moody’s outlook upgrade.
Moody’s observed, “The expected recovery in Macau, coupled with the strong performance at the company’s Las Vegas and Encore Boston Harbor properties will support revenue and earnings before interest, taxes, depreciation, and amortization growth and drive leverage down.”
Wynn is reducing secured debt, which is pertinent to bondholders as that form of debt takes precedence over unsecured obligations. Moody’s said it expects the gaming company will continue paring secured liabilities relative to unsecured debt going forward.
For Wynn, Good Timing on Moody’s Call
Moody’s upgrade of Wynn’s credit rating also included a similar move for Wynn Macau, adding support to the increasingly bullish thesis for corporate bonds issued by concessionaires in the special administrative region.
Professional investors have flocked to debt issued by Macau gaming companies, including Wynn Macau, due to high yields, declining default risk, and stability relative to other areas of the Chinese junk bond market.
Wynn’s “credit profile reflects the improving performance of the company’s Macau operations as the recovery continues, and the continued strong performance of the company’s US operations, driving leverage down from elevated levels,” noted Moody’s. “The rating is supported by the quality, popularity, and favorable reputation of the company’s resort properties — a factor that continues to distinguish Wynn from other gaming operators — along with the company’s well established and very successful track record of building large, high-quality destination resorts.”
The six Macau concessionaires are Galaxy Entertainment, Melco Resorts & Entertainment (NASDAQ: MLCO), MGM China, Sands China, SJM Holdings, and Wynn Macau.
Downgrade/Upgrade Scenarios for Wynn
Over the near-term, Wynn’s credit rating isn’t likely to be downgraded nor is an upgrade to investment-grade territory imminent, but those scenarios could change. For example, the issue could be vulnerable to a downgrade if consumer discretionary spending sharply retreats or if its debt-to-EBITDA ratio reaches or exceeds 7x.
“Ratings could be upgraded if debt/EBITDA on a Moody’s adjusted basis is maintained below 6.0x. Good liquidity and continued revenue growth with strong positive free cash flow would also be needed for an upgrade,” according to Moody’s.
The research firm expects that Wynn will maintain adequate liquidity and that upcoming bond maturities will be managed in expedited fashion.