Earlier this week, Wynn Resorts (NASDAQ:WYNN) sold $600 million of corporate notes coming due in 2025 with at an interest rate of 7.75 percent in a private offering, a transaction that was significant for at least two reasons.
First, the offering was upsized from $350 million, indicating demand for the notes was robust, even though corporate debt markets are under stress. Second, some analysts view the sale as confirmation that gaming companies can access capital even as the COVID-19 pandemic is forcing temporary property closures around the world, bringing with it a zero-revenue environment for operators.
This is a significant milestone for the industry, as it represents the availability of capital even in this environment, at least for some issuers,” said Union Gaming analyst John DeCree in a note to clients.
The rub is at what terms casino companies will have to issue bonds, should they choose that avenue to raise capital. With the industry under duress caused by the coronavirus outbreak, creditors will likely demand added compensation for what they perceive to be elevated risk. For example, one credit rater graded Wynn’s latest sale at B1, which is deep into junk territory, meaning a higher coupon for investors.
Other Avenues For Cash
Over the past month, gaming companies, including Caesars Entertainment Corp. (NASDAQ:CZR), MGM Resorts International (NYSE:MGM) and Wynn, rushed to bring cash onto their balance sheets via bank lines of credit. For its part, the Encore Boston Harbor operator drewdown an $850 million revolver to bolster its liquidity position.
Since March 5, US companies have drawn $215 billion on credit facilities from 382 different lenders, according to S&P Global Market Intelligence. Nearly half of that capital has been drawn by consumer discretionary companies – the sector in which gaming operators reside. On a standalone basis, casino companies account for 6.7 percent of that $215 billion.
With Wynn being successful in its latest bond sales, DeCree says rivals could soon test the waters, too.
“There will likely be a number of gaming issuers that will need to test the markets in the coming weeks, and we suspect there will be demand at various levels of risk,” said the analyst. “While not everyone will be as successful as Wynn Resorts, we think it is important to remember that there is real money demand for quality businesses with good assets and proven management teams.”
Wynn Resorts has $3 billion in liquidity, positioning it to survive for 1.4 years should property closures last longer than expected.
Still, the aforementioned bond offering was well-timed and could serve to calm skittish investors, because the company recently said it’s Wynn Macau arm is still bleeding about $2.5 million per day, a sum that doesn’t include $500,000 worth of interest expense.
“Wynn Resorts led the way for the gaming sector… with an upsized bond offering, marking the first new issuance for the sector since Covid-19 hit,” said DeCree. “It doesn’t surprise us that Wynn Resorts was the first deal out of the gate as a well-known seasoned issuer with a long history of timely and successful capital-markets activity.”