Moody’s says that Wynn Resorts’ leverage is likely to stay high.
Moody’s says that Wynn Resorts’ leverage is likely to stay high.
Over the next 12 to 18 months, the leverage at Wynn Resorts‘ (NASDAQ: WYNN) financing unit is likely to stay high as the casino company tries to get back on track in Macau.
Wynn Palace in Macau. In 2023, Wynn Resorts is likely to keep using a lot of debt. (CNBC picture)
In a recent report, Moody’s Investors Service predicted that Wynn Resorts Finance, LLC will have leverage of between 7.3x and 9.5x earnings before interest, taxes, depreciation, and amortization (EBITDA) for the next 18 months. That is the financing business of the gaming company, which also includes Wynn Macau’s needs for money. Even though these ratios are high, they are much better than the 23.2x that was reported for the year ending in September 2022. A lot of the gaming company’s ability to reduce debt in 2023 may depend on how well Macau recovers.
Moody’s said, “For Macau’s VIP segment, we expect GGR to stay a lot lower than in 2019 even in 2023 and 2024. This is because regulators are paying more attention to the segment and the junket sector is getting weaker.”
Wynn Resorts Finance has a “B1” junk rating and a negative outlook from the research firm. Since December 2021, that credit grade has been in place, and it is thought to be speculative. Bonds with that rating “face a very high credit risk.”
Wynn Resorts stock has gone up by 12.55 percent in the last month. This has cut the stock’s year-to-date loss to just 0.83 percent. That is a big improvement over the general market and the gaming complex.
The casino stock, which had been struggling, is picking up speed to close in 2022. This is due to a number of good news stories, such as Macau’s decision to renew the licenses of the six established concessionaires, including Wynn Macau, and China’s recent call to end its zero-COVID policy.
Both problems had a big effect on Wynn shares. But since neither of those is possible right now, analysts are hopeful that Wynn can give investors more upside in 2023. This could be done while making progress toward paying off debt. The stock is not a risk-free bet, though.
Moody’s says that Wynn Finance’s “junk” credit rating is a sign of “lingering earnings weakness from efforts to contain the coronavirus and the slow recovery in Macau visitation and revenue,” which means that the company isn’t doing well financially.
Wynn’s biggest market is Macau, and a comeback there is important for the shares to go up in the long run and for a possible credit upgrade. But Moody’s also said that Boston and the Las Vegas Strip, which are two of the operator’s other markets, are strong. The company is based in Las Vegas, but it is also considering a move to New York City.
Macau’s gross gaming revenue (GGR) may not return to pre-pandemic levels until 2023. Wynn and other concessionaires won’t be ready for credit upgrades for a while either.
Wynn’s debt/EBITDA ratio must reach 6x before Moody’s will upgrade it.
Moody’s believes Macau’s “casinos must stay open and ramp up closer to normal utilization” and “enough earnings must be restored to create considerable positive free cash flow before development spending can be done.”