Wynn Bonds Steady with Large Yields, but Upside Likely Limited

Posted on: November 24, 2023, 01:47h. 

Last updated on: November 24, 2023, 01:47h.

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

Corporate bonds issued by Wynn Resorts (NASDAQ: WYNN) offer investor the benefits of an improving credit profile and big yields, among other alluring factors, but near-term capital appreciation by that debt could be limited.

Wynn Civic 50
Wynn Las Vegas. The operator’s corporate bonds are appealing for income, but may not generate much upside, says an an analyst. (Image: YouTube)

That’s the sentiment of Gimme Credit analyst Kim Noland who, in a recent report, highlighted the operator’s international expansion efforts. Those include Wynn Al Marjan Island in the United Arab Emirates (UAE) — a venue that should bring some diversification to the company’s top line.

Plus Wynn’s new growth project, Wynn Al Marjan, will cost near $4 billion but produce an estimated annual adjusted property EBITDA of near $525 million (whereby Wynn’s 40% interest could yield near $200 million). Construction has begun and Wynn projects an opening date in the first quarter of 2027,” wrote Noland.

She forecast that Wynn will generate earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) of $2 billion this year.

Improving Outlook for Wynn Debt

While acknowledging there is potentially limited upside for select Wynn corporate debt, Noland has an “outperform” rating on the 7.125% bonds maturing in 2031. Those bonds were sold earlier this year.

Beyond specific issues, Wynn debt could be appealing to fixed income investors because the operator’s credit profile is improving. For example, earlier this month, Wynn’s and Wynn Macau’s credit ratings were upgraded one notch to “BB-“ from “B+” by Standard Poor’s (S&P).

While an investment-grade rating is still three notches and likely a lengthy amount of time away, the S&P upgrade of Wynn’s credit grade shows there’s potential momentum for Wynn debt. Bolstering that thesis is recent data indicating professional bond investors are eagerly buying bonds issued by Macau casino concessionaires of which Wynn Macau is one.

“The company’s cash flow in Macau is starting to resemble pre-pandemic levels when it comprised near three-quarters of the total,” added Noland. “The company’s decision to terminate its online sports betting and iGaming platform in certain U.S. states has helped stem losses from that business. Wynn’s overall performance exceeded market expectations for the third quarter.”

Wynn Leverage on Right Path

As is the case with several other gaming companies, Wynn is taking steps to reduce leverage – an important move at a time when financial markets are confirming large debt burdens are not in style.

“We now expect the company to achieve near $2 billion EBITDA for the full year,” concludes Noland. “Using this figure and based on the company’s quarter end debt and cash balances and short-term investments of $11.8 billion and $3.5 billion, respectively, leverage and net leverage would decrease by year end to near 6x and 4x, respectively.”

Indeed, the Encore Boston Harbor operator is trending in the right direction regarding its outstanding liabilities. Those stood at $12.9 billion at the end of September, down from $13.7 billion at the end of last year.