Wynn Resorts (NASDAQ:WYNN) is getting some flexibility on its credit agreement with Deutsche Bank. The company is gaining a covenant relief period to potentially avoid default, as domestic gaming operators contend with what is becoming a lengthy temporary closure period forced by the coronavirus outbreak.
Analysts widely expected the operator of two Las Vegas Strip venues and Encore Boston Harbor to approach the German lender regarding relaxing debt covenants. Wynn joins rivals, including MGM China, Sands China, and several domestic operators, in asking creditors to loosen interest coverage and leverage ratio requirements that otherwise could be breached if casinos remain closed longer than anticipated.
The Credit Agreement Amendment amends the Credit Agreement to, among other things: (i) implement a financial covenant relief period through April 1, 2021 (unless earlier terminated by WRF) and (ii) implement a financial covenant increase period commencing on the first day after the expiration of the Financial Covenant Relief Period and ending on the first day of the fourth fiscal quarter after the expiration of the Financial Covenant Relief Period (unless earlier terminated by WRF),” according to a filing with the Securities and Exchange Commission (SEC) obtained by Casino.org.
“WRF” refers to Wynn Resorts Finance. As part of the amendments, Deutsche Bank agreed to amend the definition of consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) and alter the accord’s definition of “material adverse effect” to allot for the COVID-19 pandemic’s impact on the operator’s business.
The amended pact also features “certain restrictions on restricted payments,” which can include limitations on the portion of dividends WRF receives from its operating units. Wall Street widely views the Wynn Resorts dividend of $4 annually as vulnerable. But the filing doesn’t explicitly mention a cut or suspension of that payout.
As is the case with operators that asked creditors for some financial breathing room, Wynn procured an increase to its net leverage ratio from Deutsche Bank. In effect, that allowed the gaming company to take on more debt if needed to stay afloat in a challenging environment.
For the first fiscal quarter following the amended agreement, WRF’s first lien net leverage ratio can be as high as 4.50 to one before gradually declining to 4.25 to one in the following quarter, 4-to-1 and so on, according to the filing.
Willing to Play Ball
Although its three US properties are currently closed and its Macau unit is bleeding approximately $3 million per day, Wynn is one of the more financially sound companies in the industry, a trait almost certainly taken into account by Deutsche Bank when agreeing to the covenant relief.
The operator recently said it has $3 billion worth of liquidity, giving it at least 1.4 years worth of coverage for operating expenses and interest costs, assuming little or no revenue is coming in.
Additionally, the company recently sold $600 million of corporate debt in a private sale, an offering that was upsized from $350 million, indicating demand for the operator’s paper is strong and that it has other avenues for accessing if needed.