Wynn: debt specialist warns on rapid dividend resumption

Wynn: debt specialist warns on rapid dividend resumption

A “strong” liquidity profile and “high cash balance” should support Macau casino operator Wynn Macau Ltd through the Covid-19 crisis, said Lucror Analytics, an independent research firm based in Singapore that focuses on high-yield credit.

But the institution wrote it was “cautious” that Wynn Macau Ltd “might resume dividend payments too quickly (i.e., before it is able to generate and sustain positive free-cash-flow), which would be highly credit negative.”

Lucror Analytics said it considered there were risks associated with Wynn Macau Ltd’s ownership by Wynn Resorts Ltd, given the Macau unit’s “history of paying large dividends to the parent company”. U.S.-based Wynn Resorts owns a 72 percent stake in Wynn Macau Ltd.

“Our fundamental credit bias on Wynn Macau [Ltd] is ‘negative’, on account of its weakened earnings,” wrote credit analyst Leonard Law. “We expect the company’s financial profile to deteriorate materially in fiscal-year 2020, before recovering slightly in fiscal-year 2021.”

In August, Wynn Macau Ltd reported a nearly US$351.6-million net loss for the second quarter of 2020. The company said its revenues from casino operations for the three months ended June 30 were negative by almost US$15.0 million, adversely affected by VIP hold.

Wynn Macau Ltd runs the Wynn Macau complex on the city’s peninsula and the Wynn Palace casino resort (pictured) in the Cotai district.

Wynn Macau Ltd’s results in the six months to June 30 “were unsurprising and in line with industry trends,” noted Lucror Analytics, adding that the casino operator’s third-quarter revenue and earnings before interest, taxation, depreciation, and amortisation (EBITDA) were “expected to remain very weak”.

“We foresee fourth-quarter revenues will recover to 45 percent of pre-pandemic levels, which should allow the company to generate slight positive EBITDA,” stated the research firm.

Lucror Analytics said that the casino firm had a “strong liquidity profile,” thanks to bond issuance exercises in June and August 2020.

“Assuming a zero-revenue scenario, the company will incur operating losses of US$2 million per day, or circa US$60 million per month,” said Mr Law. “Still, Wynn Macau has sufficient cash balance to withstand 24 months of cash burn with zero revenue, after accounting for capex and interest.”

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