In an assertive move, Moody’s Investors Service has upgraded the forecast of Wynn Resorts’ corporate credit rating from “negative” to “stable.” This significant shift reflects the organization’s decreasing debt burden, which has painted a brighter financial future for the casino giant.
At the heart of the decision is the affirmation of Wynn Resorts’ “B1” credit rating. Despite this rating residing in what is considered ‘junk’ territory, the prospects for Wynn Resorts are starting to look up, thanks in large part to an uptick in fortunes in Macau. The region is witnessing a revival in economic activity, and Wynn’s local operations, managing two notable integrated resorts, stand to benefit.
Looking to the specifics, Moody’s recognized that signs of recovery in Macau, alongside robust performance at Wynn’s Las Vegas and Encore Boston Harbor venues, are set to bolster revenues and EBITDA – that is, earnings before interest, taxes, depreciation, and amortization. This financial strengthening is expected to result in a notable decrease in leverage.
Observers note that Wynn Resorts is actively lessening its secured debt. This shift bears particular significance for bondholders, since secured debt traditionally supersedes the company’s unsecured financial obligations. Forward-looking, Moody’s anticipates that Wynn will keep minimizing the proportion of secured liabilities in its debt profile.
This favorable reassessment by Moody’s did not occur in isolation for the resort operator but extended to Wynn Macau as well. This comes at an opportune juncture for the concessionaires within Macau’s Special Administrative Region. While stocks have been under pressure, industry bonds are attracting attention. Their appeal emanates from high yields, dwindling default risks, and a semblance of stability when contrasted with other segments of the Chinese junk bond market, thus attracting savvy investors toward Macau’s corporate debt instruments.
Moody’s also emphasized the positive contribution of Wynn’s strengthening credentials. Factors such as the revitalized performance in Macau, the continued success in the United States, and the esteemed reputation of Wynn’s luxurious resort properties set the company apart from its counterparts. Wynn’s storied ability to craft high-end destination resorts has been fundamental in the company’s ability to manage and reduce financial leverage.
In the broader scope, six entities hold concessions in Macau: Galaxy Entertainment, Melco Resorts & Entertainment, MGM China, Sands China, SJM Holdings, and Wynn Macau.
Looking ahead, while a downgrade or elevation to investment-grade status may not be imminent for Wynn Resorts, the dynamics are there for potential shifts. Noticeably, a spike in the debt-to-EBITDA ratio or a downturn in consumer discretionary spending could trigger a downgrade.
Conversely, securing an upgrade would require the maintenance of debt-to-EBITDA ratios below 6.0x, paired with healthy liquidity and robust free cash flow from ongoing revenue growth, as outlined by Moody’s. The research firm maintains that Wynn is likely to preserve adequate cash reserves while effectively managing forthcoming bond maturities.
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