Melco Resorts & Entertainment Gets Moody's Upgrade, Eyes Strong Recovery
Date: 2023-11-17 Author: Dima Zakharov Categories: CASINO, EVENTS
Melco's Q3 Success in Macau:
The quarterly results of Melco’s City of Dreams operator brand have played a crucial role in the rating upgrade. The special administrative region of Macau has experienced favorable conditions, aiding the recovery of the local market. This upswing in business, particularly in the VIP segment, suggests a potential return to 36% of the 2019 gaming revenue levels by 2024.
Moody's Perspective on Melco's Improvement:
Gloria Tsuen, a Moody’s vice president and senior credit officer, affirmed that Melco’s financial leverage is expected to improve significantly over the next 12-18 months. The current tailwind, propelled by the positive market conditions in Macau, led to Moody’s favorable adjustment of Melco's credit rating.
Challenges and Optimism for Melco:
Despite the positive outlook, Melco still faces challenges from the lingering effects of the pandemic and China's Zero-COVID policy. The company reported a $100 million loss in 2022, emphasizing the need for sustained effort in overcoming business and financial hurdles. However, Melco remains optimistic about a turnaround in 2023 and 2024.
Future Projections and Key Considerations:
Melco aims for an increase in EBITDA to $900 million by the end of the current year and $1.4 billion in 2024. Moody's considered Melco's $1.2 billion in cash and its impressive Macau portfolio as key factors in the rating upgrade. However, reaching an investment-grade rating will necessitate continued improvement, with a focus on achieving an EBITDA of at least 4.5x-5x.
Cautionary Notes from Moody's:
While expressing confidence in Melco's recovery, Moody's warned of potential risks. Melco's rating could be downgraded if adjusted EBITDA returns to 5.5x-6x or if liquidity weakens. These factors pose theoretical challenges that could impede the company’s recovery and hinder its ability to reduce debt.
Credit Suisse's Vote of Confidence:
Melco Resorts & Entertainment has also gained trust from Credit Suisse, which earlier raised its rating to buy. Positive catalysts and the better-than-expected recovery in Macau were cited as reasons for the optimistic outlook.
