Wynn Resorts (NASDAQ:WYNN) depends on Macau for significant portions of its revenue and earnings before interest, taxes, depreciation and amortization (EBITDA), making the operator vulnerable to declines in visits to the peninsula.
At least one research firm agrees with that thesis, as Standard & Poor’s (S&P) put Wynn’s corporate debt rating on CreditWatch negative. S&P announced the move yesterday, noting visitation to the world’s largest gaming center is likely to remain “depressed” over the near-term.
Wynn Resorts derives about 70% of its property-level EBITDA from the Macau gaming market, and we expect that the severe decline in visitation to the market during the Lunar New Year will reduce the company’s cash flow for the first quarter and possibly longer,” said S&P in a note obtained by Casino.org.
Earlier today, Macau Chief Executive Ho Iat Seng said the Special Administrative Region’s (SAR) gaming properties will be closed for two weeks as the number of coronavirus cases there reached 10.
Wynn, the operator of Wynn Macau and Wynn Palace, delivers fourth-quarter results on Thursday, Feb. 6 with analysts expecting earnings of 85 cents per share, down from $1.05 a year earlier.
Thus far, rival Las Vegas Sands (NYSE:LVS) is the only one of the US-listed Macau operators to report quarterly numbers and take that opportunity to comment on the viral outbreak. Last week, LVS Chairman and CEO Sheldon Adelson called the situation “unique and serious,” while President COO Rob Goldstein said it would be difficult to make up revenue lost due to plunging visitation.
It remains to be seen if Wynn CEO Matt Maddox or members of that executive team make similar remarks, but S&P is concerned about the operator’s leverage.
“We believe that Wynn entered 2020 with S&P-adjusted net leverage in the high 4x area, which should provide it with a limited cushion relative to our 5x downgrade threshold to absorb additional operating volatility,” said the ratings agency.
S&P currently has a BB rating on Wynn debt, which is a non-investment grade mark. BB is the second-highest junk level, but it comes with some warnings for bond investors to consider.
A BB bond “is less vulnerable to nonpayment than other speculative issues,” notes S&P. “However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to the obligor’s inadequate capacity to meet its financial commitments on the obligation.”
The research firm said it’s monitoring Macau’s efforts to contain and resolve the coronavirus issue, and that another announcement on Wynn’s CreditWatch level could be made prior to that resolution.
“We will also attempt to assess the length of the virus’ disruption to the market and how quickly Wynn might be able to reduce its leverage below 5x if the outbreak is temporary and it recovers quickly,” said S&P. “We will also assess Wynn’s liquidity position and its ability to absorb a prolonged period of depressed cash flow.”