Melco Crown Entertainment Limited (Nasdaq:MPEL) is offering investors US$600 million worth of senior notes due in 2018 in an exercise it says will reduce its debt burden on its City of Dreams project on Cotai in Macau.
Although MPEL is listed on New York’s Nasdaq, the notes have been given approval in principle for listing on Singapore’s SGX. The yield on the notes is 10.25%, which is 6.67% above yields quoted on Wednesday for US Treasury 10-year notes.
“The company intends to use the net proceeds from the offering to reduce the indebtedness under the company’s City of Dreams project facility,” MPEL said in a statement accompanying the announcement. The announcement appears to indicate that MPEL has previously paid a significant premium on portions of its CoD debt relative to its competitors in the industry.
City of Dreams—along with its rival property The Venetian Macao built by Las Vegas Sands Corp. across the road—experienced significant cost overruns attributed at the time to commodity and wage inflation in the overheating Chinese economy. CoD had a final budgeted cost in June 2009 of more than US$2.4 billion—12.5 percent above the US$2.1 billion estimated cost MPEL gave in a filing to the US Securities and Exchange Commission in October 2007. The final bill was 37.5 percent above the original estimate of US$1.5 billion MPEL submitted in an SEC filing in 2006.
CoD had been scheduled to open in mid-June 2009, but the date was brought forward by two weeks to 1st June at the insistence of lenders. The imposition of this covenant may have related to investor concerns about MPEL’s previously patchy project management in Macau.
Altira Macau (then known as Crown Macau), the joint venture’s VIP-focused property in the mainly residential Taipa district of Macau, had a shaky start in May 2007 when it opened seven months late and massively over budget (with a final US$583 million price tag versus an originally budgeted cost of US$192 million).
Rumours have persisted for months that one of the MPEL joint venture partners—James Packer of Australia’s Crown Ltd—would like to exit the Macau market, though this has been firmly denied by MPEL’s co-chairman Lawrence Ho.
The new senior note offering has been made by MCE Finance Limited, a wholly owned subsidiary of MPEL. Only primary lenders with debt secured directly against the value of City of Dreams will take precedence over buyers of the new senior notes.
