Ongoing concerns over liquidity and free cash flow generation as a result of the COVID-19 pandemic mean a proposed US$140 million to US$150 million notes issue won’t positively impact Universal Entertainment Corp’s Issuer Default Rating, senior secured debt rating or Recovery Rating, according to ratings agency Fitch.
Universal confirmed earlier this week that it was now proceeding with an additional notes issue, to be incorporated into a larger notes issue last September, in order to fund redemption of US$118 million of existing notes due December 2021.
The issue of additional notes and early redemption of existing notes “are intended to improve the company’s cash flow and secure its liquidity,” Universal said.
However, Fitch responded on Wednesday by confirming it would not be adjusting the company’s “CCC+” Issuer Default Rating, its “CCC+” senior secured debt rating or its “RR4” Recovery Rating as a result.
Instead, Fitch said positive ratings action hinges on better visibility over the end of the company’s cash burn amid the economic downturn.
“Fitch believes there is a risk of prolonged free cash flow weakness amid the ongoing COVID-19 pandemic and potential further deterioration in both the casino and amusement equipment businesses,” it wrote.
“Universal is highly exposed to the pandemic as the operator of Okada Manila, the largest integrated casino resort in Manila’s Entertainment City, and in its Japanese amusement equipment business, which produces and sells pachinko and pachislot machines in Japan.”
Fitch outlined ongoing risks to Universal including travel restrictions, outbreaks and further lockdowns which could lead to further cash burn and deteriorating liquidity, “leading to additional stress on its business and credit profiles.”
Universal recently reported a net loss attributable to owners of the parent of JPY5.21 billion (US$47.6 million) for the three months to 31 March 2021.
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