Wynn Loan to Macau Unit Negative Sign, Others Could Follow, Says Morgan Stanley

Posted on: June 15, 2022, 08:32h. 

Last updated on: June 16, 2022, 03:42h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Wynn Resorts (NASDAQ:WYNN) extending a $500 million credit revolver to its Wynn Macau unit is a negative sign. But other concessionaires in the world’s largest casino center could follow, according to Morgan Stanley analysts.

Wynn Macau
The Wynn Macau integrated resort. Morgan Stanley is concerned about the company receiving financing from its US parent. (Image: Wynn Resorts Macau)

The bank says the move by Wynn implies Macau operators are encountering headwinds in obtaining capital from banks — a potentially ominous sign when analysts are concerned about cash burn rates, profitability is hard to come by. Yields on corporate debt issued by concessionaires are blowing out.

Bond yields for Wynn Macau is 12%. Bond yields for most other Macau operators also at >10%, making bond financing expensive,” note Morgan Stanley analysts.

Even with the extension of the $500 million credit facility to its Macau unit, Wynn sounded bullish on the special administrative region’s (SAR) long-term prospects.

“The agreement highlights both Wynn Resorts and the company’s (Wynn Macau) confidence in the long-term growth potential of Macau, and the availability of the facility further bolsters the company’s already strong financial position,” said the company in a regulatory document.

Wynn Resorts owns 72% of Wynn Macau.

Other Macau Operators Could Follow Suit

The Morgan Stanley analysts indicate Wynn may not be the last parent company to extend capital to its Macau unit.

“We expect Sands China and SJM could announce similar arrangements soon unless SJM could complete refinancing soon,” said the analysts.

Grand Lisboa Palace operator SJM Holdings is perhaps the most financially imperiled of the six Macau concessionaires. But the company is waiting on a consortium of creditors to approve a $2.4 billion loan, which could be a vital lifeline.

As for Las Vegas Sands (NYSE:LVS) providing capital to its Sands China operation, Morgan Stanley didn’t forecast exactly when that could happen. Last September, the operator of five Macau integrated resorts amended an agreement with a group of creditors. In March, Sands China drew $201 million on a credit revolver, buying it time to support operations through at least the end of this year.

Cash Burn Concerns

Morgan Stanley forecasts Macau’s second-quarter gross gaming revenue (GGR) of just $1.1 billion, which would mark the third-worst quarter since 2020.

“We estimate 2Q22 [Corporate earnings before interest, taxes, depreciation and amortization (EBITDA)] for Macau at [a loss of US$600 million to US$700 million] versus [a loss of USS$9 million] in 1Q22. 2Q free cash flow equity (after development Capex) could be negative US$1.6 billion to US$1.7 billion for the industry versus a US$1 billion loss in 1Q22,” adds the bank.

As such, cash burn rates are amplified. While the Morgan Stanley analysts note Wynn Macau has the cash to survive at least 38 months, the research firm estimates the operator is spending $2 million a day in the current quarter, or 82% above first-quarter levels.

MGM China Ltd, Sands China, and SJM Holdings have less than a year’s worth of cash, according to Morgan Stanley. The bank’s report didn’t mention MGM Resorts International (NYSE:MGM) potentially providing capital to MGM China. The US-based parent owns about 56% of the Macau unit.