Moody’s Investors Service has returned the outlook on Macau’s SJM Holdings Ltd and its subsidiary Champion Path Holdings Ltd to negative amid uncertainty around its recovery runway.
The agency has, however, confirmed SJM’s Ba3 corporate family rating (CFR) and the B1 rating on backed senior unsecured bonds issued by Champion Path, with the ratings “reflecting the completed refinancing of SJM’s loan facilities, which now provide the company with adequate liquidity for at least the next 12 months,” according to Moody’s Assistant Vice President and Analyst, Sean Hwang.
The refinancing, announced last week, means a large chunk of SJM’s debts will no longer mature until January 2026 with the seven-year loan facilities to be used to repay SJM’s existing loans and replenish its liquidity.
Moody’s said the cash and availability under the revolver – estimated at between HK$6 billion and HK$6.5 billion – will be sufficient to cover its cash needs for at least the next 12 months, cash burn that is likely to continue for the remainder of 2022.
However, Hwang said, “The negative outlook reflects the high uncertainty surrounding the pace and extent of SJM’s earnings recovery, and our view that SJM’s financial leverage will likely remain very high over the next 12 to 18 months.”
Moody’s estimates that Macau’s mass-market gaming revenue will be around 40% of 2019 levels this year, improving to 80% in 2023 and recovering in full in 2024. VIP revenue is unlikely to recover significantly given the recent crackdown on junkets.
As such, Moody’s has forecast SJM’s adjusted debt/EBITDA to exceed 10x in 2023 and only fall to 5.1x in 2024.
“This level of financial metrics in 2024 is still commensurate with SJM’s Ba3 CFR, but significant risks exist over the assumed pace and magnitude of earnings recovery, driving the negative outlook,” the agency wrote.
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